Who Gets Paid First
Katrela Ventures Daily Update · Investment, M&A and Business Innovation Digest · 15 September 2026
Key takeaways
A liquidation preference lets preferred investors be repaid before founders and employees when a company is sold or wound up.
Participation rights and anti-dilution floors can sharply change founder payouts even in a large exit.
The Centre prohibited charges on UPI transactions up to ₹2,000 and on RuPay cards; Flam raised $40 million in a Series B.
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01. TOP STORIES
Centre Prohibits Charges on UPI Transactions Up to Rs 2,000 and RuPay Cards: The Finance Ministry has issued a notification specifying that banks and payment system providerscannot impose direct or indirect charges on UPI transactions up to Rs 2,000 and payments made via RuPay-powered debit cards. While the notification legally protects lower-value UPI and RuPay payments from charges, it leaves open the possibility of a Merchant Discount Rate (MDR) for higher-value UPI transactions, though P2P payments remain entirely free.TVG Makes Follow-on Investment in HCM Platform Darwinbox: Teachers’ Venture Growth (TVG), the late-stage investment arm of the Ontario Teachers’ Pension Plan, has made a follow-on investment in human capital management (HCM) platform Darwinbox, marking its second backing following an initial investment in 2025. Founded in 2015, Darwinbox provides a mobile-first, cloud-based HCM platform serving over 1,400 companies and 4.5 million employees globally, backed by a 70% CAGR over the past five years across the US, Middle East, India, and Southeast Asia.Lenskart Boosts Stake in AjnaLens Parent Dimension NXG to 9.01%: Lenskart Solutions has increased its shareholding in XR startup Dimension NXG (parent of AjnaLens) to 9.01% after investing an additional Rs. 8 crs. for a 1.8% stake. This is Lenskart's third investment in the company this year, bringing its total recent deployment to Rs. 18.5 crore to advance its partnership for developing AI-powered smart glasses and XR technologies.
02. QUICK TAKES
Term Sheet Clauses That Matter: Who Gets Paid First When Outcomes Diverge
Venture-Backed Startups (Global): 45,000+ | Term Sheet Disputes & Restructurings: 12%
Liquidation Preference & Payout Hierarchy A liquidation preference is a contractual right letting preferred investors get paid back before common shareholders (founders, employees) when the company is sold or liquidated. A 1x non-participating preference is standard investors just recoup their capital first. A 2x–3x multiple lets them pull two or three times their stake off the top. In a soft exit, this can consume the entire payout, leaving founders and employees with nothing despite years of dilution.
Case study: Good Technology's $425M sale to BlackBerry left common shareholders with almost nothing after preference stacks were paid out.
Participation Rights & Double-Dip Mechanics Participation rights let investors collect their liquidation preference AND then also share pro-rata in whatever's left over with common holders - instead of choosing one or the other. Without a participation cap (typically 2x–3x), this "double-dip" can absorb most of a moderate exit's proceeds, turning what looks like a successful acquisition into a wipeout for common stock.
Case study: the same Good Technology/Divvy pattern shows Divvy's $1B sale still yielding zero for common shareholders.
Anti-Dilution Protection & Down-Rounds Anti-dilution clauses adjust how many shares an investor's preferred stock converts into if the company later raises money at a lower valuation (a "down round"), protecting them from having invested "too high." Weighted-average anti-dilution (the market standard) gives a moderate adjustment. Full-ratchet resets the investor's price all the way down to the new low, regardless of round size - sharply inflating their ownership and diluting founders and common holders.
Case study: Phoenix Motor Inc. v. JAK Opportunities II - a NY court enforced a full-ratchet clause against a company that tried to structure around it.
Pro Rata & Drag-Along Governance Pro-rata rights let existing investors buy enough of a new round to keep their ownership percentage steady, protecting them from being diluted out as rounds pile up. Drag-along rights let a defined majority of shareholders (usually preferred) force everyone else to sell when they approve a deal - especially when combined with a waiver of fiduciary duty, this can let preferred holders push through a low-valuation sale that leaves founders and common holders with little say and little money.
Case study: In re Trados (Del. Ch. 2013) - common holders got $0 from a $60M sale while preferred investors collected $52.2M.
Katrela's Take
➢ The term sheet tells you who actually gets paid when the outcome arrives. Founders read it for the valuation and skip straight past the clauses that actually decide their payout. That's backwards - a 2x participating preference with a low anti-dilution floor can turn a $400M "win" into a $0 outcome for the person who built the company. Good Technology, Trados, Phoenix Motor - none of these were edge cases, they were the contract working exactly as written. The fix is founders learning to price liquidation stacks the same way they price valuation, before they sign.
03. FUNDING BRIEF
Bengaluru-and-San Francisco-based AI interactive content companyFlam has raised $40 million(Rs. 335 crs. approx.) in a Series B funding round led by QED Investors. Founded in 2021 by Shourya Agarwal, Malhar Patil, and Amit Gaiki, the startup develops AI-powered interactive content featuring patented formats like Flicks, Forge, Airboards, Fable, and upcoming Visual Agents powered by the Falcon language model for over 100 enterprise customers globally, including Google, Reliance, and Hyundai.
Follow **Aaditya Jain**, **Pradeep Jain** and **Katrela Ventures** for expert insights on investment trends, M&A activities, and business strategy! 💡
Frequently asked questions
What is a liquidation preference?
A contractual right that lets preferred investors get their money back, or a multiple of it, before common shareholders such as founders and employees.
Why should founders read beyond valuation in a term sheet?
Katrela Ventures notes that a 2x participating preference with a low anti-dilution floor can leave founders with little or nothing even from a large headline exit.
Which clauses decide the payout waterfall?
Liquidation preference multiple, participation rights, seniority between rounds and anti-dilution protection.
This edition was first published in the Katrela Ventures Daily Update newsletter on LinkedIn. Subscribe to get the digest every morning.
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