Participating Preferred stock, sometimes called the “Double Dip,” is a term used in venture capital where investors secure two forms of return in an exit scenario. First, they receive their initial investment back through a liquidation preference. Then, they convert their shares to common stock and participate pro-rata in the remaining proceeds alongside founders and other shareholders. This mechanism is particularly common in down rounds or weak market conditions, where investors have leverage over founders. While it can be harsh for founders—sometimes resulting in little or no payout—the structure can be necessary to secure funding and keep the company alive. Strategic advice often emphasizes accepting the terms to survive and grow the company, aiming to increase value over time where the “double dip” becomes less consequential.
