Aligning investors before a sale
Preferences change who gets paid first
A 1x non-participating preference gives investors the greater of their money back or their pro-rata share. In a strong exit they convert to common. In a modest exit the preference protects them, and the founder and team absorb the shortfall.
Venture returns versus acquisition price
Early investors typically target 3x to 10x and an IRR above 25%. An offer that is life-changing for a founder can still look weak to a fund. Test the outcome against your valuation estimate (opens in a new tab) before you open negotiations.
Frequently asked questions
- How is investor IRR calculated at exit?
- Work out the investor’s stake at exit after dilution, multiply by the exit equity value, and compare with any liquidation preference. The larger amount is their proceeds. IRR is the multiple on invested capital raised to the power of one over the holding period, minus one.
- Why does investor return matter to a founder selling?
- Investors with board seats or consent rights can block or delay a sale. If an offer gives them a weak return, they may push for a different buyer or structure. Knowing their outcome in advance lets you align the cap table before you go to market.