# Liquidation Preference MCP > Liquidation Preference Calculator models complex equity payouts when a company sells or exits. This MCP lets you calculate exact proceeds distribution, determine conversion breakpoints, and quantify preference overhang based on cap table rules. It handles tricky scenarios involving participating vs non-participating preferred shares. ## Overview - **Category:** finance - **Price:** Free - **Tags:** cap-table, liquidation-preference, equity, exit-modeling, finance-tools ## Description When your startup cashes out, who gets paid first? That's the whole point of this calculator. It’s a specialized engine for modeling equity distribution during company exits. Instead of wrestling with complex spreadsheets and assumptions, you feed in the cap table details—the ownership stakes, the valuation multiples, the preference structures—and get accurate payout projections. You can analyze everything from simple liquidation waterfalls to complicated participating preferred rounds. For instance, it lets you see exactly how much a Series A investor gets versus an employee who owns common stock when the exit price hits certain thresholds. Using this tool through Vinkius means your AI agent handles the heavy math, letting you focus on strategy. You can accurately quantify preference overhang and test out multiple scenarios instantly. ## Prompt Examples **Prompt:** ``` If the exit price is $10,000,000 and my Series A has a 1x non-participating preference with 10% ownership, how much will they receive? ``` **Response:** ``` The Series A investor will receive $1,000,000, as their pro-rata share of the exit price is equal to their liquidation preference amount. ``` **Prompt:** ``` Calculate the total preference overhang for a cap table with $5M in Series A (1x) and $2M in Series B (2x). ``` **Response:** ``` The total preference obligation is $9,000,000 ($5,000,000 for Series A and $4,000,000 for Series B). ``` **Prompt:** ``` What happens to the distribution if I increase the exit price to $50M? ``` **Response:** ``` At a $50,000,000 exit price, the higher valuation likely triggers conversion for non-participating shareholders, allowing them to participate pro-rata in the remaining proceeds. ``` ## Capabilities ### Calculate final proceeds distribution Determines the exact amount of money each class of shareholder receives based on the exit valuation. ### Identify conversion breakpoints Pinpoints specific total exit valuations where the payout structure changes, triggering a change in preferred share status. ### Assess preference overhang Quantifies the total financial obligation the company owes to its preferred shareholders before common stockholders see any money. ## Use Cases ### Evaluating a potential acquisition A VC firm needs to know if a target company's Series B investors are overly protected. They run `assess_preference_overhang` and immediately see the total payout obligation is massive, advising their client that the exit value might be lower than expected. ### Structuring a new funding round A founder needs to convince investors on how dilution will affect early employees. They use `calculate_proceeds_distribution` with three different valuation scenarios, demonstrating that the payout structure remains favorable even at lower exit multiples. ### Checking investor rights after a raise A legal team is reviewing due diligence and needs to know if participation rights are triggered. They use `find_conversion_breakpoints` to pinpoint the exact valuation where their current preferred stock converts from non-participating to fully participating. ### Predicting payouts for a small exit A smaller startup is selling assets and needs quick cash. They use `calculate_proceeds_distribution` with the low exit price, confirming that only core preferred notes get paid out, leaving nothing for common stockholders. ## Benefits - Avoid spreadsheet errors. Instead of manually calculating complex waterfalls, use `calculate_proceeds_distribution` to get the precise payout for every shareholder class. - Know your limits upfront. Use `assess_preference_overhang` to immediately quantify how much money is locked up by preferred shares before common equity holders see a dime. - Test future valuations safely. Run through potential exit prices and use `find_conversion_breakpoints` to figure out exactly when the payout rules change for your company. - Compare rounds quickly. When evaluating new investment terms, model how different preference structures impact overall investor returns using this MCP's tools. - Save hours of legal review time. Instead of having lawyers manually check waterfall models, you can validate the math with these specialized calculators. ## How It Works The bottom line is you get instant, mathematically accurate payout modeling without building custom financial models. 1. Input your cap table data, including ownership percentages and specific liquidation preference terms (e.g., 1x non-participating). 2. Run the calculation using available tools to model different exit valuations or test for key conversion breakpoints. 3. Receive a detailed report showing the precise proceeds distribution waterfall, confirming exactly what each shareholder gets paid. ## Frequently Asked Questions **How does the Liquidation Preference Calculator handle participating shares?** The tool accurately models participation rights by ensuring that preferred investors receive their preference amount *and* get to participate pro-rata in the remaining proceeds. It handles both participating and non-participating structures. **Do I need a specific valuation to use calculate_proceeds_distribution?** Yes, you must input an exit price or total consideration value for the calculation. The tool runs the full distribution waterfall based on that single number. **What is 'preference overhang' and how do I use assess_preference_overhang?** Preference overhang is the money owed to preferred shareholders before common equity holders see anything. Use `assess_preference_overhang` to find this number first, which sets the ceiling for the common payout. **Can I use Liquidation Preference Calculator to model multiple exit prices?** Absolutely. You can test various scenarios by running calculations with different total proceeds amounts, helping you map out how payouts shift as the company valuation changes. **How does using `calculate_proceeds_distribution` handle complex security structures?** The tool requires specific inputs for each class, including ownership percentage, liquidation multiple, and participation rights. Providing this detailed breakdown ensures the model accounts for every weighted security in your cap table. **When should I use `find_conversion_breakpoints` instead of running a simple distribution calculation?** Use this tool when you need to know the specific valuation thresholds where shareholder rights change. It pinpoints those exact price points that trigger conversion or shift participation status. **What does an overhang result of zero from `assess_preference_overhang` mean?** A zero total preference overhang means the exit proceeds fully cover all senior investor obligations. This indicates there are no residual claims remaining for early-stage investors after all preferences have been paid out. **Is this MCP limited only to liquidation events, or can I use it for other financing models?** This MCP specializes in modeling exit distributions and preference mechanics. While you feed data from various sources into your agent, its scope is strictly confined to determining shareholder payouts under defined liquidation terms.