Preference stack is the seniority ordering of preferred share classes on a cap table—each layer’s liquidation preference must be satisfied before junior classes and common participate in exit proceeds.

How it works

Each financing round typically adds a new preferred series ranked senior to prior series unless structured pari passu. At exit, proceeds flow down the stack: latest investors receive their preference first, then earlier rounds, then common—unless participating preferred features share additional upside.

Multiple rounds without recapitalization create a tall stack. Moderate exits may return capital to investors while common receives little—a key founder negotiation point in down markets and acqui-hires.

Why it matters

• Founders: Understand break-even exit for meaningful common proceeds before accepting stacked prefs in successive down rounds.
• Investors: Stack seniority affects recovery in mediocre outcomes; later investors negotiate top-of-stack protection.

Common mistake

Ignoring cumulative liquidation preferences across rounds when celebrating a $100M exit headline—net to common can disappoint after the stack clears.

Related ideas

See liquidation waterfall, participating preferred, and preference stack modeling.