What is Liquidation Waterfall Model?
Liquidation Waterfall Model
A Liquidation Waterfall Model is a financial spreadsheet mapping how exit proceeds are distributed to shareholders in accordance with liquidation preferences, stock classes, and caps.
Why It Matters for Startups
Directly dictates the cap table and dilution structure during fundraising; understanding Liquidation Waterfall Model helps founders model equity distributions when structuring rounds for acquisition payout modeling and investment return projections.
Detailed Deep Dive
The Liquidation Waterfall Model calculates exit payouts. It determines how cash proceeds are distributed across debt, preferred stock classes, options, and common stock, revealing the financial outcomes for all stakeholders.
Frequently Asked Questions
Q:What is mapped in a liquidation waterfall?
The sequential payout of proceeds: senior debt first, preferred stock preferences next, option pool payouts, and finally common stock.
Q:When is a waterfall model created?
It is created during M&A due diligence to calculate the exact cash and stock payouts for each shareholder class.
Quick Facts
- CategoryValuation
- Key ApplicationAcquisition payout modeling and investment return projections
Coverage Trend12 Weeks
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