Paul Jones, co-chair of Venture Best, the venture capital practice group at Michael Best, published a blog titled, “Partially Participating Preferred: An Alternative to Participation Caps?” on the VC Experts page.
Here is a short excerpt:
“…we are talking about “participation” in the context of a preferred stock liquidation preference. In an exit transaction, other than an IPO, an investor holding “participating” preferred shares gets two bites at the exit proceeds apple. First, a bite equal to his base preference (typically an amount equal to his investment) and then a second bite equal to his pro-rata share of the remaining exit proceeds.”