A Decent Exit Can Still Be Worth Zero to Founders

South-East Asian founders are often told that 1x non-participating preferred shares are founder-friendly. That can be true for one round, but it becomes misleading when earlier preferences remain in place, investors participate twice, or conversion rules only work at valuations the company may never reach.

In 2018, FanDuel, the sports-betting company founded in Scotland and expanded in the United States, entered a transaction with Paddy Power that put a value of $465.5 million on FanDuel’s contribution to a combined company.

That sounds like a win. It was not a small number. It was not a fire-sale headline.

Yet it sat below the company’s $559 million aggregate preferred subscription price. Preferred holders received the entire roughly 40% interest in the combined business. More than 100 founders and common shareholders received nothing.

FanDuel’s 2018 transaction showed how a $465.5 million contribution value could still leave common shareholders with nothing. Photo: Myles Udland / Wikimedia Commons, CC BY-SA 4.0.

The FanDuel dispute continued for years. In May 2024, New York’s highest court allowed founder fiduciary claims to proceed under Scots law. The legal questions are complex, but the economic fact is simple enough to write on a napkin: an exit can be large and still be worthless to the people who built the company.

That is the question founders raising a South-East Asian growth round in 2025 and 2026 should ask before they celebrate a “clean” term sheet.

Not: *Is this a 1x preference?*

Ask: *How much money gets paid before our ordinary shares see a dollar?*

The comforting shorthand

A liquidation preference is the rule for dividing sale proceeds if a company is sold, merged or otherwise treated as an exit. Preferred shareholders usually get a choice: take back their preference amount, or convert their shares into ordinary shares and take their percentage of the outcome.

“1x non-participating preferred” means an investor can normally take one times the amount invested, or convert and share like everyone else, whichever produces more. It is widely regarded as the standard early-stage regional position. Singapore’s VIMA model materials point in that direction, and Morrison Foerster’s October 2025 Global VC Terms Report says Singapore rounds tend towards 1x non-participating structures.

So far, so reassuring.

But VIMA also warns that multiple rounds and differentiated preferences can sharply reduce founder proceeds. This is where most people stop looking. A founder sees 1x on the new Series C term sheet and assumes the downside is contained. Meanwhile Series A has retained its 1x. Series B has retained its 1x. The new money has its own 1x. The company has quietly built a queue at the exit door.

A 1x term can be standard. Three retained 1x claims are a capital structure.

The queue nobody models

Imagine a consumer or retail scale-up with founders and employees owning 55%, and Series A, B and C investors owning 15% each. The three investor groups put in $10 million, $20 million and $30 million respectively.

There are $60 million of invested capital behind those preferred shares.

Now compare three possible structures. These are illustrative exit waterfalls using the ownership and investment amounts above, not a record of a specific company.

| Exit value | A and B converted; C has 1x non-participating | All three retain 1x non-participating claims | All three have 1x participating claims |

|---|---:|---:|---:|

| $40 million | Founders/employees receive $6.47 million | $0 | $0 |

| $100 million | $45.29 million | $39.29 million | $22 million |

| $200 million | $110 million | $110 million | $77 million |

At $40 million, the difference is brutal. If earlier investors have converted or waived their preference rights, founders and employees receive $6.47 million. If every series keeps its 1x claim, the full $60 million stack consumes an exit worth $40 million and common receives zero.

Notice what did *not* cause that result: a 2x preference.

Every investor only had 1x.

At $100 million, the stacked non-participating structure still reduces the founder and employee outcome by $6 million compared with the cleaner structure. At $200 million, though, both non-participating examples converge. The exit is high enough that each preferred investor does better by converting to ordinary shares.

Here is the twist: seniority, which gets much of the negotiating attention, often decides which preferred investor is paid first but does not change the total paid ahead of common if all of them retain a 1x claim. Below the combined stack, common gets zero either way. Above the conversion thresholds, the preferences vanish as investors convert.

Participation behaves differently. Participating preferred shareholders take their $60 million first, then also share in the remaining proceeds. At a $200 million exit, the founders and employees receive $77 million rather than $110 million.

That is why the phrase “1x participating preferred” deserves more alarm than it sometimes gets. It can be a double dip, although the legal drafting will determine exactly how it works. If participation cannot be avoided, founders should seek an inclusive cap on the investor’s total return, such as 2x or 3x.

A document with nine queues

The fear that these features only appear in theoretical spreadsheets is misplaced.

Neurolief, an Israel-based medical technology company, amended its articles after an investment agreement dated August 18, 2025. Its capital structure included ordinary shares, A and A-1 shares, B through B-4 shares, and three S preferred series.

The exit queue was elaborate. S shares were paid first. B-3 and B-4 then received 2x plus accrued dividends. Other B classes received 2x plus accrued dividends. A and A-1 received 1x or their as-converted value. Several B classes could then participate in remaining proceeds. B-series dividends compounded at 8%; A-series dividends compounded at 6%. A merger was generally treated as a liquidation event.

Neurolief’s 2025 amended articles show how multiples, dividends, seniority and participation can compound in one waterfall. Photo: Leon Natan / Pexels, Pexels licence (free commercial use).

No single clause explains the result. That is the point.

The multiple, the dividend accrual, the sequential ranking, the participation rights and the definition of an exit reinforce one another. A founder who negotiates each item in isolation can walk away believing they won four small battles while losing the war in the arithmetic.

Neurolief is not a South-East Asian company, and it should not be presented as evidence of a regional norm. It is evidence of something else: cross-border growth capital can import an architecture that looks nothing like the benign shorthand in local market commentary.

The available public record does not offer a statistically representative set of anonymised 2025-2026 South-East Asian growth term sheets. That limitation matters. The regional norm claim rests on VIMA contributors, law-firm deal data and disclosed transactions, not a complete market census. Still, the lesson is sturdy because it concerns mechanics, not fashion. A stack works the same way in Singapore as it does elsewhere.

A big sale is not automatically a good sale

FanDuel shows what happens when an exit lands below the stack. Good Technology, a United States and Canada enterprise software company, illustrates the governance problem that often travels alongside it.

When Canadian technology company BlackBerry acquired Good Technology for $425 million on October 30, 2015, Delaware court materials recorded that venture-capital-affiliated directors held multiple preferred securities. The transaction recovered most of their preferences while leaving little for common shareholders. The subsequent litigation produced a settlement process.

The assumption that all shareholders want the highest possible sale price sounds obvious until you remember that they may not be paid in the same order.

An investor whose preference is about to be recovered may reasonably view a sale very differently from a founder whose ordinary shares only become valuable above a much higher threshold. Add board representation and sale approval rights, and a financial difference can become a decision-making difference.

Put FanDuel, Good Technology and the illustrative $40 million waterfall side by side and a pattern appears that none of the documents says outright: liquidation preference is not merely downside protection for investors. It can change the price at which different people inside the same company decide that an exit is acceptable.

That is why a preference clause cannot be negotiated separately from drag-along rights, which can force minority holders to sell, or from a credible independent valuation process. FanDuel’s preferred holders also had drag-along power. The waterfall and the ability to trigger it belong in the same conversation.

For a broader look at this distinction between ownership and decision rights, read the control you give up may not be in the cap table.

When the stack disappears

The argument has a boundary, and it matters.

PropertyGuru, the Singapore property technology company, converted its preference shares before its 2022 NYSE listing. When Swedish investment firm EQT agreed in August 2024 to acquire PropertyGuru for about $1.1 billion, every outstanding ordinary share was entitled to the same $6.70 cash consideration.

PropertyGuru’s simplified share structure shows how automatic conversion can make private preferences irrelevant at a successful exit. Photo: NamThip Thailand / Wikimedia Commons, CC BY-SA 4.0.

The private preference waterfall was no longer operating. The capital structure had been simplified before liquidity.

This is the best answer to the question, “Is 1x non-participating preferred standard?” It can be standard and it can be sensible, especially where automatic conversion is clear and a successful qualifying IPO or sufficiently high exit makes the preference economically irrelevant. PropertyGuru shows the clean version.

Zilingo, the Singapore fashion technology company, marks the other boundary. It entered creditors’ voluntary liquidation on February 17, 2023 after members determined its liabilities prevented continued operation. Creditors sit ahead of equity. No adjustment to founder equity, seniority or participation can rescue anyone once enterprise value is exhausted by liabilities.

So preferences matter enormously in the middle zone: the company is valuable enough to sell, but not valuable enough to clear a complicated stack with ease.

What founders should ask for instead

The instinct in a difficult round is to fight the visible number. Do not accept 2x casually, certainly. But the lower-friction and often more valuable asks are architectural.

First, demand a fully diluted exit waterfall. Run it at low, middle and high valuations. Include every existing share class, accrued dividends, expenses and conversion choices. A spreadsheet is not pessimism. It is the only way to learn what the term sheet means.

Second, seek one aggregate preference pool. This can mean converting, waiving or capping legacy preferences rather than allowing every historical round to keep a separate claim. At a $40 million exit in the illustrative model, commonising A and B creates founder value. Simply moving C ahead of them does not.

Third, insist on mechanical conversion: the investor receives the greater of its preference amount or its as-converted ordinary-share value, not both. Exclude cumulative dividends, interest and expense additions from the definition of “1x” unless you have consciously priced their effect.

Fourth, consider pay-to-play provisions in a rescue round. Investors who decline to fund the company may lose some or all of their preferred rights. Singapore practitioners reported growing use of this mechanism, although changing class rights may require consent. Under Singapore’s Companies Act, class-rights changes require the approval specified in the constitution or, if none is specified, holders of at least 75% of that class.

Finally, negotiate conflict protections before the exit is on the table: aggregated preferred consents rather than a veto for every legacy series, independent valuation where incentives diverge, and a clear process for directors with different economic interests.

GI Network’s view: The right question is not “Can we get 1x?” It is “At what exit value do ordinary shares start participating, and who can approve a sale before we get there?”

What experienced investors are protecting

New money is not necessarily being unreasonable by seeking seniority or downside protection. A growth investor arriving after a market reset may be funding a company whose earlier valuation no longer looks credible. The investor is trying to avoid financing a recovery only to find that an earlier, cheaper cap table absorbs the eventual proceeds.

That concern is real. So is the founder’s concern that a new protective layer makes the business harder to finance, harder to sell and less motivating for the people doing the work.

Good investors check the stack because they know it affects incentives. They ask whether existing investors will support the next round, whether management retains meaningful upside at a realistic exit, and whether a buyer can understand the capital structure without hiring a forensic accountant. They also know that a bridge which looks “reasonable” in isolation can make the next financing far more difficult. The same dynamic appears in the bridge looked reasonable. The next lead called it uninvestable.

For founders, that means presenting a proposed clean-up as a financing solution, not a plea for softness. Show new money that a capped, consolidated or commonised legacy stack improves management incentives and leaves a saleable asset. Then show legacy investors what they gain from keeping the company fundable.

GI Network would start by rebuilding the cap table into an exit-waterfall model, testing the proposed round at several valuation outcomes and identifying which legacy rights create the real blockage. We would then align the documents with the downside protections growth investors genuinely need, map investors whose mandate fits the structure, and rehearse the investment-committee objections before outreach. Founders seeking that work can Apply for Capital with the waterfall, not just the valuation, ready for scrutiny.

The three-number test

Before signing a term sheet, use the Three-Number Test.

One: the stack. Add every amount payable before ordinary shares receive proceeds, including retained preferences, dividends and additions.

Two: the switch. Identify the exit value at which each class chooses conversion rather than its preference. That is where a seemingly harsh stack may fade, or where it may still bite.

Three: the share-again rule. Ask whether an investor takes its preference and then participates in the remainder. If yes, calculate the effect at a strong exit, not only a weak one.

If the answer to those three numbers is unclear, the term sheet is not yet understood. And if it is understood, “1x” may turn out to be the least interesting number on the page.