Participation Rights Are Increasing Post-2022

In addition to decreased valuations and less capital being deployed, what other market signals are forming?

We looked at our last 50 deals among companies with multiple equity financings and compared them to the height of the venture market in 2021-2022. We found that investors are negotiating for participation rights far more frequently – increasing from 9% to 16% since 2022. Where non-participating stock affects down and flatter exits for founders and investors lower in the capital stack, having investors with participating preferred stock affects exit outcomes across the board.

Capped participation increased 57%
Participating preferred increased 33%
Non-participating stock remains the expectation

Questions to Consider:

Founders: Are you willing to accept an investment with participation rights or would you look for alternate forms of capital?
Investors: Would you trade a lower valuation for a participation rights?