Participating preferences reach 31% of growth term sheets in 2026

A new Yanne Capital paper says growth-stage term sheets are getting tougher even as headline valuations stay flat. The firm says the real shift is in deal structure, with participating preferences, liquidation multiples and dividends taking a larger share of investor economics.

Why it matters: - Growth-stage founders are seeing more investor downside protection even when headline valuations look steady. - The paper argues the economics of 2026 rounds are shifting away from common shareholders and employees, not just changing on paper. - Yanne Capital says the term-sheet repricing affects how companies should plan for exits, fundraising and runway.

What happened: - Yanne Capital released a research paper on the lower middle market capital outlook for the second half of 2026. - Participating preferences appeared in 31% of Series B and Series C term sheets in the first quarter of 2026. - That share was 14% in Q1 2024. - The firm said five of six major growth-stage term-sheet variables have moved against companies since Q1 2024.

The details: - Liquidation preferences above 1x appeared in 19% of growth-stage rounds, up from 7% two years earlier. - Cumulative dividends appeared in 28% of rounds, up from 9%. - Pay-to-play language has moved from a negotiated point in 2023 to standard drafting. - Median Series B round size fell to $31 million in Q1 2026 from $41 million in Q1 2024, a 24% decline, according to PitchBook US Venture Deal Terms. - Yanne Capital said sponsors are conceding on pre-money valuation and recovering economics through other terms. - The firm said the public markets remain open, but at a much smaller scale than in 2021. - US growth-stage IPO volume in the first half of 2026 reached 23 priced deals and $18 billion in proceeds, compared with 56 deals and $64 billion in the first half of 2021, according to Bloomberg ECM. - Yanne Capital expects the IPO window to widen in Q4 2026, with the strongest activity in vertical AI, defense technology and healthcare technology. - The paper says companies outside those categories should plan to reach 2027 without depending on an IPO. - Yanne Capital said four exit paths matter in 2026: a priced primary, a structured primary with downside protection, a secondary or recapitalization, and a strategic transaction. - The firm said a structured primary is often underused and can be better for common shareholders than a priced round with participating preferences and an elevated liquidation multiple. - Yanne Capital said founders should price for clearing rather than headline maximization.

Between the lines: - The paper frames the market shift as structural, not cyclical. - Yanne Capital argues that private credit has become the more attractive destination for institutional capital because it offers floating-rate returns and shorter duration. - Growth equity fund closings totaled $38 billion in 2025, down from $91 billion in 2021. - Private credit fund closings totaled $217 billion in 2025, up from $134 billion in 2021. - Yanne Capital said a Fed rate cut alone is unlikely to reverse the capital rotation. - The firm said a meaningful reversal would require more distributable cash from growth equity, which depends on either a functioning IPO market or stronger strategic M&A. - Corporate venture arms, sovereign-linked vehicles and family office direct programs now account for roughly 38% of US growth-stage equity, according to the paper. - Sovereign and quasi-sovereign deployment reached $47 billion in 2025, up from $22 billion in 2021. - US technology and healthcare acquisitions of companies valued between $100 million and $600 million rose 31% year over year by count in the first half of 2026. - Median revenue multiples in those deals stayed within 8% of 2024 levels. - Yanne Capital said running priced, structured, secondary and strategic processes in parallel can shorten time to close by four to six weeks.

What's next: - The firm expects companies to focus more on structure than on top-line valuation in upcoming rounds. - Yanne Capital said founders with eight to twelve quarters of runway should build optionality across several exit paths instead of betting on a 2026 IPO. - The paper suggests the most competitive capital raises in this market will be the ones that clear fastest on the cleanest documents.

The bottom line: - In Yanne Capital's view, 2026 growth financing is being repriced in the term sheet, not the headline valuation.