The order in which sale or liquidation proceeds are paid out to creditors, preferred stockholders, and common stockholders based on liquidation preferences and conversion decisions.

Definition

A distribution waterfall is the modeled sequence in which proceeds from a sale, merger, or liquidation of a company are allocated among stakeholders. Secured and unsecured creditors are paid first, followed by preferred stockholders in order of seniority up to their liquidation preference (as set out in the certificate of incorporation), with any remaining proceeds distributed to common stockholders (and to preferred stockholders that convert to common if participation or conversion produces a larger payout). Each preferred series' rank (senior, pari passu, or subordinate to other series) and preference multiple (1x, 1.5x, 2x) determine where it sits in the waterfall, and participating preferred stock can receive both its preference and a pro-rata share of the remaining common proceeds.

Why it matters

MedTech exits often occur through acquisition by a strategic acquirer shortly after a pivotal trial readout or regulatory clearance, sometimes at valuations only modestly above total invested capital. Because MedTech companies frequently raise several rounds of preferred stock across a long development timeline, the waterfall can consume most or all of the exit proceeds through liquidation preferences before common stockholders (including founders and employees) receive a meaningful payout, making waterfall modeling essential before evaluating any acquisition offer.

Common pitfalls

•Assuming liquidation preference stacks are always paid pari passu; many term sheets set explicit seniority (later rounds senior to earlier rounds) that changes payout order.
•Overlooking participation rights, which let certain preferred holders 'double dip' by taking their preference and then sharing in the residual common pool.
•Failing to model the waterfall before signing a term sheet for a new round, which can retroactively push earlier common stockholders and option holders far down the payout order in a modest exit.

Sources

Cornell LII: Liquidation Preference · Cornell Law LII
SEC Investor.gov: Preferred Stock · SEC Investor.gov
NVCA Model Certificate of Incorporation · NVCA

Open full page

Select term B to compare.

Why compare MedTech terms side by side?

MedTech terminology is full of pairs that look interchangeable but carry very different regulatory, clinical, and commercial consequences. Picking the wrong framework, pathway, or standard early in a project can add months to a submission, invalidate clinical evidence, or trigger an audit finding. Side-by-side comparison is the fastest way to surface those differences before they become costly mistakes.

Each comparison on this page pulls from the same vendor-neutral, sourced definitions used throughout the MedTech Terms glossary. You see the one-line summary, the formal definition, why it matters in practice, common pitfalls, and the primary sources (FDA guidance, EU MDR/IVDR articles, ISO/IEC standards, MDCG documents, IMDRF principles) that back each entry. That makes the comparison defensible in regulatory strategy memos, design reviews, and submission narratives.

Common comparison patterns

Regulatory pathway choice - 510(k) vs PMA, 510(k) vs De Novo, Abbreviated vs Special 510(k).
Quality systems - QSR vs ISO 13485, QMSR vs QSR.
Software classification - SaMD vs SiMD, Locked vs adaptive AI.
EU frameworks - MDR vs IVDR, CE Mark vs UKCA.
Cybersecurity artifacts - SPDX vs CycloneDX SBOM, CVE vs CVSS.
Post-market actions - Recall vs field action, Removal vs correction.

How to use this tool

Pick term A and term B from the dropdowns, or click a preset above. The URL updates with both slugs so you can bookmark or share the exact comparison with a colleague, a notified body reviewer, or your regulatory consultant. Click Open full page on either side for the complete entry, including FAQs, related terms, and the full citation list. If you are not sure which term to start with, browse the Categories view or the A-Z index.

MedTech Terms is a vendor-neutral community resource sponsored by Blue Goat Cyber. Definitions are written for educational use and are not legal or regulatory advice.