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Cap Table and Exit Waterfall Analysis
Every shareholder's payout at each sale price, worked out from your cap table and charter, plus your share of each extra dollar.
Free to start · Opens in your River workspace, ready to edit and share
How to run a cap table waterfall analysis
A cap table waterfall analysis shows how the money from a sale flows to each shareholder. It pays each series of preferred stock its liquidation preference, in the order the charter sets, unless converting to common would pay that series more. Whatever is left is split by share count. A good one starts from the proceeds that reach shareholders, tests a range of sale prices and marks the breakpoints where each holder's cut of the next dollar changes.
The rule that matters most: read every term from the charter (formally, the certificate of incorporation), never from the cap table alone. Under Delaware law, a series of stock carries the preferences and "participating, optional or other special rights" stated in that certificate1 or its amendments. A cap table records who owns what, not what each share is owed.
Gather the documents first
Collect everything that sets a share count, a price or a right before you open a spreadsheet. A waterfall built on an old charter can be precise to the dollar and still wrong.
- The cap table, with every class, option, warrant and reserved share
- The certificate of incorporation in force, with every amendment
- The stock purchase agreements and side letters for each round
- The option plan, and any SAFE or note still outstanding, with what each pays in a sale
- The offer or draft merger agreement, and any debt due at closing
Work from the latest restated charter and any amendment filed since. A later round can rewrite earlier rounds' terms, and the signed charter can differ from the term sheet. If the cap table is messy, rebuild it from the signed documents with a startup cap table template.
Find the terms that set the order
Venture capitalist Brad Feld calls liquidation preferences the second most important economic term, after price2. Despite the name, they normally cover a merger or acquisition too, not only a shutdown.
Terms that shape a waterfall
| Term | What it decides | What to look for |
|---|---|---|
| Preference multiple | What a series gets back before common sees anything | 1x returns the original price per share; 2x returns double |
| Participation | Whether the series also shares what's left | Non-participating stock takes its preference or its as-converted share, whichever is greater |
| Participation cap | Where a participating series stops sharing | A 3x cap includes the preference: 2x more on top of a 1x preference |
| Seniority | Who is paid first when money runs short | Stacked (latest round first), pari passu (shared in proportion) or a mix of tiers |
| Dividends | Whether unpaid dividends add to the preference | Accruing dividends build up whether or not the board declares them |
| Conversion price | How many common shares each preferred share becomes | Original issue price divided by conversion price, after any anti-dilution adjustment |
Plain preferences are the norm. Of the 166 venture financings the law firm Cooley handled in the second quarter of 2026, 95.8% had a 1x liquidation preference and 96.4% used non-participating preferred3. The exceptions are what move money, so read every series.
Start from what reaches shareholders
The headline price is not what the waterfall divides. Take off debt repaid at closing, bankers' and lawyers' fees, any management carve-out (a bonus pool paid out of the sale) and other sale bonuses. Then check how the charter treats escrow and earn-outs.
The National Venture Capital Association (NVCA) model charter gives two options for escrowed money. It can be withheld from every holder in proportion to their payout. Or it can count as a later payment, in which case preferred holders get their full preference even if the escrow is forfeited4. Under the same model, a later earn-out is run through the waterfall as if it had been paid at closing.
Run the waterfall in order
Pay preferences by seniority
Pay the most senior series in full before the next. If a tier can't be paid in full, split it in proportion to what each series is owed.
Test conversion together
Convert any non-participating series that would get more as common. One series converting changes what's left for the rest, so repeat until no series wants to switch.
Split the remainder
Divide what's left by share count among common, converted preferred and any participating series. A capped series stops sharing at its cap and converts once that pays more.
Count options deliberately
A vested option is worth the common payout per share minus its exercise price, or nothing if that price is higher. State how the deal treats unvested options, and leave out pool shares never granted.
Check the totals
At every sale price, the payouts must add up to the net proceeds, to the dollar. If they don't, a share count or a term is wrong.
Solve conversion for every series at once
The NVCA's drafting notes call the calculation with several series "quite complicated"4, because each series' payout depends on what the others do. A sheet that tests one series at a time can miss that.
Read the range, not one price
Run sale prices from below the total of all preferences to above the point where every series converts. Center the range on the offer or, if there isn't one yet, on the value a comparable company analysis points to.
Mark each breakpoint: where the preferences are covered, where a cap binds, where a series converts and where options come into the money. Between two breakpoints, each holder keeps a fixed share of every extra dollar, and that share is what a price negotiation turns on.
Example Co. has 10 million shares. Founders and staff hold 6 million common shares. Series A paid $4 million for 2 million shares, and Series B paid $10 million for 2 million. Both are 1x non-participating, and Series B is paid first.
Up to $10 million: every dollar goes to Series B. Common keeps nothing.
$10 million to $14 million: every dollar goes to Series A. Common keeps nothing.
$14 million to $26 million: the preferences are paid, so common keeps every new dollar.
$26 million to $50 million: Series A converts. Common keeps 75 cents of each new dollar.
Above $50 million: Series B converts too. Common keeps 60 cents, its ownership share.
- Ownership isn't payout. At a $20 million sale, common owns 60% of the shares but receives $6 million, or 30%.
- Where conversion starts. Series A would own 2 of the 8 million shares sharing what is left after Series B. That quarter beats its $4 million preference above $26 million.
- Why the bands matter. Raising the price from $20 million to $30 million adds $9 million for common. From $60 million to $70 million, it adds $6 million.
A participation cap can make common's share of each new dollar rise in the middle of the range. Once a participating series reaches its cap, it stops taking a slice, and common's share jumps until that series is better off converting. Before you sign a new round, see how its terms would move these bands with a term sheet explainer.
How it works
Start with your cap table and the current charter, pasted or attached, plus the sale price you're weighing. River reads each preference, cap and seniority rule from the documents, nets debt, fees and escrow out of the headline price, and solves conversion for every series together. It writes a sheet in your workspace with every holder's payout across the range and the breakpoints, plus a plain summary of which term moves each band. Terms it can't confirm are labeled, never filled in with a market default.
Share your documents
Paste or attach the cap table and current charter, plus any financing agreements and the offer you're weighing.
River reads the terms
It takes each preference, cap and seniority rule from the documents and flags any term it can't confirm.
Get every payout
A sheet of each holder's payout across your range, with breakpoints, plus a plain summary of what drives them.
Test a change
Ask River to rerun the waterfall at another price, or with one term changed, to see who gains.
What you get
- Every holder's payout at each sale price you name, with every column adding up to the proceeds
- Each breakpoint, from the price below which common gets nothing to where every series converts
- Your share of each extra dollar between breakpoints, so you know what a higher price is worth
- What each term costs, and whether it takes from founders or only moves money between investors
- A terms table naming the document and section behind every preference, cap and seniority rule
- A plain-language summary of your payout at the offer and the two or three terms worth negotiating
Common questions
What is a cap table waterfall analysis?
A cap table waterfall analysis works out how sale proceeds are divided among a company's shareholders. Investors with preferred stock are paid their liquidation preferences first, or convert to common when that pays more, and whatever remains is shared by share count. The analysis is usually run at several sale prices to show how each holder's payout changes.
What is the difference between participating and non-participating preferred?
Non-participating preferred gets a choice at a sale: take its liquidation preference or convert and share as common, whichever pays more. Participating preferred gets both: its preference first, then a share of what's left alongside common. A cap limits participation to a total multiple of the original price, after which the holder converts if that pays more.
Why is my payout lower than my ownership percentage?
Because preferred holders are paid their preferences before common shares see anything. In a modest sale, the preferences can take most of the money, so common's slice falls far below its ownership. Once the price is high enough that every series converts, each share is paid the same. A waterfall across a range shows where that happens for your company.
How do I run a waterfall analysis with River?
Paste or attach your cap table and charter in the box at the top of this page, with any financing documents and the offer you're weighing. River reads each term from the documents, runs the waterfall across your price range, and writes a payout sheet and a plain summary into your free River workspace.
What if I can't find one of the financing documents?
Run it anyway, but don't fill the gap with a market default. River marks every term it couldn't confirm from a document, shows the outcome under each plausible reading with the amount between them, and names the document that would settle it. Without any charter at all, it still builds the table and labels every term unconfirmed.
Is this legal advice on my documents?
No. The analysis reads what your documents say and works out the arithmetic that follows. Where drafting could be read two ways, it shows both readings and the amount at stake, so you can take the question to your lawyer. Treat the result as preparation for that conversation, not a substitute for it.
Is the cap table waterfall analysis free?
Yes, it is free to start. Your waterfall sheet and summary open in a River workspace, where you can edit them, share them or ask River to change them. Paid plans add more AI use and access to the most advanced models.
Sources
Delaware Code. “Delaware Code Title 8, Chapter 1, Subchapter 5.” delcode.delaware.gov (opens in a new tab)
Feld Thoughts. “Term Sheet: Liquidation Preference.” feld.com (opens in a new tab)
Cooley. “Q2 2026 Venture Financing Report – Record $85.7 Billion Invested; Up Rounds Remain Strong.” cooley.com (opens in a new tab)
National Venture Capital Association. “NVCA Model Certificate of Incorporation (Updated Oct 2025).” nvca.org (opens in a new tab)
Cooley GO. “Board Considerations When Contemplating a Sale.” cooleygo.com (opens in a new tab)
Built by
Chandler Supple
Co-founder & CEO, River
Chandler has spent the last six years working in AI, building tools for millions of users and Fortune 100 companies. In 2025, he co-founded River to build a new kind of operating system for AI agents.