Exit planning
How an exit waterfall is calculated
Follow sale proceeds through debt repayment, liquidation preferences, SAFE elections, and the residual shared with common stock and awards.
On this page
Payment order, not ownership order
A waterfall distributes a sale price in the order the claims rank, and only what survives each step reaches the next one. Ownership percentages describe the last step, not the first, which is why a holder with 20% of the shares can receive far more or far less than 20% of the money.
| Rank | What is paid |
|---|---|
| 1. Convertible notes | Principal plus interest accrued to the model date, repaid off the top ahead of every share. |
| 2. Pre-money SAFEs taking their money back | The purchase amount, due ahead of every share, shared pro rata among them if the funds run short. |
| 3. The preference stack | Each preferred class’s multiple of what it actually invested, most senior first, shared pro rata inside a tier when the money runs out. A post-money SAFE taking its money back ranks alongside the stack as a whole. |
| 4. The residual | Shared pro rata by common stock, converted preferred, participating preferred, converting SAFEs, and every in-the-money option, RSU, and warrant. |
The app’s waterfall summary reports the same distribution in four lines: repaid on convertible notes, paid on liquidation preferences, paid to SAFEs taking money back, and shared with everyone else, alongside the price per participating share.
Every class chooses, and the choices interact
Each preferred class compares its contractual leg with converting to common, and takes whichever pays more. Each outstanding SAFE makes its own choice between taking its money back and converting at the exit price. Those choices are not independent: anything that converts adds shares to the residual pool and reduces what every other participant receives per share, which can change another holder’s decision. Cap Table settles the elections together by iteration rather than one at a time, and a SAFE’s cap divides by the liquidity capitalization, which leaves out the unissued option pool.
Participation caps enter the same calculation. A capped class participates only up to its cap, and past that point conversion is generally what pays more. See Participating preferred and participation caps.
Awards, warrants, and the exercise cost
Options and warrants participate only where the per-share proceeds exceed the strike, and the strike is paid out of the proceeds rather than in addition to them. An award below its strike is out of the money and contributes nothing. Unsettled RSUs have no strike, so their treatment depends on the participation assumption you choose.
The unvested-award assumption and the change-of-control assumption are modeling choices, not deal terms. Unallocated plan capacity never receives a payout: a reserve is not a holder. See Distinguish exit proceeds from share value and exercise cost.
Know what the model leaves out
The exit value is the total sale price before escrow, transaction fees, expenses, and tax; none of those are modeled, and neither is payroll withholding on an award. Proceeds are conserved in the model, so every dollar is either paid to a holder or reported as unallocated.
Read the modeled distribution as an explanation of the recorded terms at an assumed price, not as a payment schedule. Reconcile it against the transaction’s own allocation before anyone is paid.