Waterfall Analysis

Seniority vs Pari Passu

In a standard waterfall, Series C gets paid before Series B, which gets paid before Series A. This is "standard seniority". However, investors often negotiate "Pari Passu" (equal footing), where all preferred series share the first tier of the waterfall proportionately.

Zone of Indifference

With participating preferred stock, there is often a "zone of indifference" for common shareholders—a range of exit values where an increase in the sale price yields zero additional dollars to the founders because the preferred investors are absorbing the entire marginal increase via participation.