Liquidation Preference: 1x vs Participating, With a Worked Exit Waterfall

Matt Haycox · Oct 22, 2026

A liquidation preference is the right of an investor to be paid back before the other shareholders when the business is sold or wound up. It’s attached to preference shares and written into the company’s articles of association, or in the US into its certificate of incorporation. A 1x preference means the investor gets back what they put in before the other shareholders are paid.

A standard 1x preference makes no difference to the founders on a sale above the valuation the investor came in at, but on a smaller sale it can leave them with far less than their percentage suggests…