Planning Your Exit: How to Model What You'll Actually Take Home

Introduction: The $100M Headline That Paid You Nothing

You've been at the startup for three years. You've vested 150,000 options at a $0.50 strike price. The company just got acquired for $100 million. The press release is glowing. Your friends are congratulating you.

Then you get the payout email: $12,000.

How did a $100M exit turn into grocery money? The answer is the liquidation waterfall—the legal mechanism that determines who gets paid first, second, and last when a company sells. Your options sit at the bottom of that waterfall, and by the time the money cascades down through transaction fees, liquidation preferences, and participating preferred shareholders, there's almost nothing left.

This isn't a edge case. It's the default outcome for most startup exits that don't return a large multiple on invested capital. The $100M headline is a press release. The waterfall is what you actually get paid.

CapTableIQ's exit simulator was built to show you the truth before you make career or financial decisions based on headline valuations. This tutorial walks you through how to model different exit scenarios, spot the breakeven points, and understand exactly what your equity is worth at various acquisition prices.

Understanding the Waterfall: Who Gets Paid First

The liquidation waterfall is a priority queue. When the company sells, the proceeds are distributed in strict order:

1. Transaction fees (legal, banking, advisory—typically 1-5% of the exit price)
2. Liquidation preferences (preferred shareholders get their investment back first, in reverse seniority order)
3. Participating preferred (if applicable, these investors get their preference and a pro-rata share of what's left)
4. Common shareholders (founders, employees, option holders—you)

Key insight: If the exit price is less than or equal to the total liquidation preferences, common shareholders receive zero. This is the "underwater" scenario—the company sold, but your equity is worthless.

For a company with $10M in preferences and 2% transaction fees, the breakeven is $10.2M. Any exit below that, and common gets nothing.

Setting Up Your Scenario in CapTableIQ

CapTableIQ comes with three built-in presets to help you understand different cap table structures. Let's use the Clarion Exit preset—a real-world scenario from the architecture docs.

Loading the Clarion Scenario

1. Open CapTableIQ and navigate to the Cap Table tab
2. Click Load Preset and select Clarion Exit
3. Review the loaded data:
   • Company: Clarion
   • Post-money valuation: $80M (Series B)
   • Total raised: $26M across Seed, Series A, and Series B
   • Your grant: 50,000 options, 37,500 vested, $2.12 strike price

The cap table structure:

Share Class	Shares	Investment	Liquidation Preference
Founders Common	6,000,000	—	—
Employee Pool	2,000,000	—	—
Seed Preferred	1,000,000	$2M	1x non-participating
Series A Preferred	2,500,000	$12M	1x non-participating
Series B Preferred	2,500,000	$12M	1x non-participating

Total shares: 14,000,000
Total preferences: $26,000,000

Customizing for Your Situation

If you want to model your own company:

1. Go to the Cap Table tab
2. Click Add Preferred Share Class for each funding round
3. Enter the investment amount, liquidation multiple (usually 1x), and whether it's participating
4. Add your common shares (founders) and option pool
5. Navigate to My Grant and enter your strike price, vested options, and grant date

Once your cap table is loaded, you're ready to run scenarios.

Reading the Charts: Breakeven, Upside, and Downside

Navigate to the Scenarios tab. This is where the exit simulator lives.

The Waterfall Chart (Top)

The stacked bar chart shows how the exit proceeds are distributed at your selected exit price. Each colored segment represents a tier in the waterfall:

• Gray: Transaction fees
• Dark yellow/brown: Senior preferred (Series B in Clarion)
• Yellow: Mid-tier preferred (Series A)
• Light yellow: Junior preferred (Seed)
• Green: Common shareholders (founders + employees)

For the Clarion scenario at a $30M exit:

• Fees: ~$600K (2%)
• Series B preference: $12M
• Series A preference: $12M
• Seed preference: $2M
• Remaining for common: $3.4M

Out of a $30M exit, common shareholders split $3.4M across 8M shares (6M founders + 2M pool) = $0.425 per share.

Your 37,500 vested options are worth:

• Gross: 37,500 × $0.425 = $15,937
• Exercise cost: 37,500 × $2.12 = $79,500
• Net: -$63,563 (underwater)

The Payout Lines Chart (Bottom)

This chart shows how each stakeholder's payout changes as the exit price increases from $0 to 2× your selected exit.

Three lines:

1. Investors (purple): Rises quickly at first (liquidation preferences), then flattens or grows slowly (non-participating preferred doesn't share upside)
2. Founders (yellow): Flat at zero until the breakeven point, then rises steeply
3. Grant Holder (green, right axis): Your net payout after exercise cost

Vertical marker lines:

• Gray dashed: Breakeven for common ($26.5M for Clarion—total preferences + fees)
• Green dashed: Breakeven for your grant (the exit price where your net payout crosses zero)
• Yellow solid: Your currently selected exit price

Actionable insight: Drag the exit price slider and watch the charts update in real time. You'll see exactly where your equity becomes valuable—and how much upside you have at realistic exit multiples.

For Clarion:

• Breakeven for common: $26.5M
• Breakeven for grant holder: ~$35M (where $0.425/share × 37,500 > $79,500 exercise cost)
• 10× return for grant holder: ~$120M exit (needs $2.12/share to cover exercise + $21.20/share net = $23.32/share fully loaded)

The company needs to exit above $5.3M for common shareholders to participate—anything below that and the entire proceeds go to preferred.

Comparing Perspectives: Investor vs. Employee Returns

One of the most eye-opening features in CapTableIQ is the perspective toggle in the Scenarios tab. It lets you compare how the same exit looks to different stakeholders.

Investor Perspective

Investors care about ROI (return on investment). For Clarion, the investors put in $26M total. At a $30M exit:

• Investor payout: $26M (they get their preferences back)
• ROI: 1.0× (breakeven)

At a $50M exit:

• Investor payout: $26M (non-participating preferred takes preference, not pro-rata)
• ROI: 1.0× (still breakeven—they don't participate in upside)

At a $100M exit:

• As-converted value: $26M / $26M invested = some ownership %
• If converting is better, they convert and share pro-rata
• Otherwise, they still take $26M preference
• ROI: 1.0× to ~1.5× depending on dilution

Non-participating preferred is founder-friendly at high exits (investors don't double-dip), but it also means investors need a very large exit to see meaningful returns.

Employee Perspective

Employees care about net cash after exercise cost. For your Clarion grant:

• $30M exit: -$63K (underwater)
• $40M exit: -$30K (still underwater)
• $50M exit: +$8K (barely positive)
• $100M exit: +$180K (meaningful, but not life-changing after 3+ years)

The chart makes this painfully clear: the green line (your net payout) stays negative until the exit crosses ~$35M, then rises slowly.

Founder Perspective

Founders (common shareholders) have the most shares, so they capture the most upside once the waterfall clears. For Clarion's founders (6M shares):

• $30M exit: $3.4M remaining / 8M common shares × 6M founder shares = $2.55M split among founders
• $100M exit: Remaining after $26M preferences = $74M × 75% founder ownership = $55.5M

Founders are aligned with employees (both are common), but they own 3× more shares, so the same exit that barely pays you can still be lucrative for them.

Switching perspectives in the UI:

The perspective dropdown lets you isolate one line at a time:

• All Three: See the full picture (default)
• Investor: Focus on ROI and preference recovery
• Founder: Understand when founders start seeing meaningful returns
• Grant Holder: Your personal view—when does your equity become worth exercising?

Use this to have informed conversations with your manager, recruiter, or financial advisor. "At a $50M exit, my equity is worth $X net. What's the realistic exit range for this company?"

The Participating Preferred Trap

Not all liquidation preferences are created equal. Participating preferred is the most employee-hostile term you'll encounter.

Here's how it works:

1. Investor gets their liquidation preference (e.g., 1× their investment)
2. Then they convert to common and share the remaining proceeds pro-rata
3. This is called "double-dipping"—they get paid twice

Let's modify the Clarion scenario to make Series B participating instead of non-participating.

Before (Non-Participating)

At a $50M exit:

• Series B preference: $12M
• Series A preference: $12M
• Seed preference: $2M
• Remaining: $24M for common (8M shares)
• Per-share value: $3.00
• Your 37,500 options: $112,500 gross - $79,500 exercise = $33,000 net

After (Participating)

At a $50M exit:

• Series B preference: $12M (paid first)
• Series A preference: $12M
• Seed preference: $2M
• Remaining: $24M
• But now Series B participates: they get pro-rata of the $24M based on their 2.5M shares
• Series B additional: 2.5M / 14M × $24M = $4.3M
• Series B total: $12M + $4.3M = $16.3M
• Remaining for common: $24M - $4.3M = $19.7M
• Per-share value for employees: $19.7M / 8M = $2.46
• Your 37,500 options: $92,250 gross - $79,500 exercise = $12,750 net

Participating preferred reduced your payout by 62% at the same exit price.

Red flag: If you see "participating preferred" in a term sheet, push back hard or negotiate a participation cap (e.g., "participating up to 2×"). This limits the double-dip to a maximum multiple of the original investment.

How to check in CapTableIQ:

1. Go to the Cap Table tab
2. Look at each preferred share class
3. Check the "Is Participating" checkbox
4. If checked, look for a "Participation Cap" value
5. Run the scenario with and without participation to see the impact

Participating preferred is rare in top-tier VC deals (YC, a16z, Sequoia almost never do it), but it's common in:

• Down rounds (investors protecting their downside)
• Later-stage growth equity
• Private equity / buyout scenarios
• Non-institutional investors (angels, corporate VCs)

At a $30M exit with $26M in stacked preferences, your options might be worth less than the cost to exercise them.

Exporting Your Report to Share with a Financial Advisor

Once you've modeled your scenarios, you'll want to export the results to share with a financial advisor, tax professional, or just for your own records.

CapTableIQ includes a one-click HTML export that generates a beautiful, self-contained report with:

• Your cap table structure
• The liquidation waterfall at your selected exit price
• Your grant summary (strike price, vested options, in-the-money status)
• The 409A valuation gap (headline vs. common FMV)
• Narrative explanations of what it all means

How to Export

1. Navigate to the Scenarios tab
2. Set your desired exit price using the slider
3. Click Export HTML Report
4. The report opens automatically in your default browser
5. Save it as PDF (browser Print → Save as PDF) or share the HTML file

What to Share with Your Advisor

When you meet with a financial advisor or tax professional, bring:

1. The CapTableIQ HTML report (shows your equity structure and exit scenarios)
2. Your option grant agreement (the legal document from your company)
3. The most recent 409A valuation (if you have access—ask HR)
4. Your company's latest funding announcement (for the headline valuation)

Key questions to ask:

• "At what exit price does my equity become worth exercising?"
• "Should I exercise now (pay AMT) or wait until exit?"
• "What's my tax liability if the company exits at $X?"
• "How does the 409A gap affect my AMT calculation?"
• "Should I file an 83(b) election if I early-exercise?"

The report includes a narrative summary that explains the 409A valuation gap in plain English:

"The company's last-round headline valuation implies a per-share price of $5.71, but the 409A common stock fair market value is estimated at $1.20 — a 4.8× gap. This discount reflects the $26M in liquidation preferences (52% of enterprise value) that must be paid before common shareholders receive anything, plus standard discounts for illiquidity and minority interest. In practical terms, your options are priced at the 409A value, not the headline value—the gap represents value captured by the preference stack."

This is gold for explaining to a non-technical advisor why your "$80M valuation" company has options priced at $1.20/share.

Making Informed Career Decisions

The exit simulator isn't just a calculator—it's a decision-making tool. Here's how to use it when evaluating offers, considering early exercise, or deciding whether to stay at your current company.

Scenario 1: Comparing Two Offers

You have two offers:

Offer A (Late-Stage Startup):

• 50,000 options, $8.00 strike price
• Company raised $100M at a $1B valuation
• Total preferences: $150M
• Your equity value at IPO ($2B): ?

Offer B (Early-Stage Startup):

• 200,000 options, $0.25 strike price
• Company raised $5M at a $20M valuation
• Total preferences: $5M
• Your equity value at acquisition ($100M): ?

Model both in CapTableIQ:

1. Create two scenarios (save each as a JSON file)
2. For Offer A: Set exit price to $2B (realistic IPO)
3. For Offer B: Set exit price to $100M (realistic acquisition)
4. Compare your net payout after exercise cost

Results:

• Offer A at $2B IPO: 50,000 × ($2B / total shares - $8.00) = ~$400K net (assuming 10% dilution to IPO)
• Offer B at $100M exit: 200,000 × ($100M / total shares - $0.25) = ~$800K net (assuming 20% dilution)

Offer B has 2× the upside despite the lower headline valuation, because:

1. Lower strike price (less capital required to exercise)
2. Lower preference stack (more proceeds flow to common)
3. Earlier stage (less dilution, more ownership %)

Scenario 2: Should You Early-Exercise?

You were granted 100,000 options at a $0.50 strike, but you haven't vested yet. Your company offers early exercise (exercise unvested options now, file 83(b) to start the capital gains clock).

Considerations:

• Exercise cost: 100,000 × $0.50 = $50,000 out of pocket
• AMT liability: (FMV - strike) × shares × 28% AMT rate
• If FMV = $0.50 (at-the-money), AMT = $0
• If FMV = $2.00, AMT = ($2.00 - $0.50) × 100,000 × 28% = $42,000

Model the upside in CapTableIQ:

1. Set your grant to 100,000 vested (simulate full vest)
2. Run scenarios at $50M, $100M, $200M exits
3. Calculate your net payout at each exit
4. Discount by the probability of each outcome (talk to your investors/founders)

If the expected value (probability-weighted payout) exceeds the exercise cost + AMT + opportunity cost of capital, early exercise makes sense.

Rule of thumb: Early exercise is most attractive when:

• FMV = strike price (no AMT)
• You're confident in the company's trajectory
• You have 3-5 years until a liquidity event (maximize long-term capital gains)
• You can afford to lose the capital (startups are risky)

Scenario 3: Should You Stay or Leave?

You've been at the company for 2 years, vested 50,000 of your 100,000 options. You have a new offer with better cash comp but fewer options. Should you stay to vest the remaining 50,000?

Model the opportunity cost:

1. Staying: Vest 50,000 more options over 2 years
   • Exit at $100M: 50,000 × ($X per share - $0.50 strike) = $Y net
   • Discount by probability of exit in next 2 years
2. Leaving: Higher salary for 2 years + new company equity
   • Cash delta: $40K/year × 2 years = $80K
   • New company equity value: model separately

If your unvested equity is worth less than the cash + new equity, leave. The waterfall simulator shows you the truth: if your company needs a $500M exit for your unvested shares to be worth $80K, and the realistic exit range is $50-100M, you're better off taking the cash.

Scenario 4: Negotiating a Retention Package

Your company is struggling. They want you to stay through a potential acquisition. You have leverage—model what you need:

1. Run the exit simulator at the rumored acquisition price ($30M)
2. Calculate your current equity value (likely underwater)
3. Ask for a retention bonus or refresh grant that compensates for the underwater equity

Example:

• Your 50,000 vested options at $2.12 strike are worth -$63K at a $30M exit
• Ask for a $100K retention bonus (paid at close) or 100,000 new options at $0.10 strike
• Model the new grant: at $30M exit, 100,000 × ($0.42 - $0.10) = $32K net
• Combined with retention bonus = $132K, vs. -$63K before

Key insight: The exit simulator gives you negotiating leverage. You can show, with math, that your equity is worthless at realistic exit prices, and you deserve cash or new equity to stay.

The Bottom Line

Equity is only valuable if:

1. The company exits above the preference stack
2. Your strike price is below the per-share exit value
3. The exit happens before your options expire (usually 90 days post-termination)

CapTableIQ's exit simulator removes the guesswork. Model your scenarios, understand your breakeven, and make career decisions based on expected value, not headline valuations.

The $100M headline is marketing. The waterfall is reality. Now you know how to read both.