Cumulative dividends on preferred stock accrue and stack up even if the company doesn't pay them in a given year, owed in full before common shareholders get anything later. Non-cumulative dividends simply don't carry over if unpaid.
Most venture-backed startups don't pay dividends at all in the early years, since cash gets reinvested into growth instead, so the distinction mostly matters at an eventual sale or liquidation, when accrued cumulative dividends get added on top of the liquidation preference before common stock sees any proceeds.
A cumulative dividend provision quietly increases what preferred shareholders are owed at exit, year after year, even without a single dividend ever actually being paid out in cash. Worth factoring into an exit waterfall calculation, not just the stated liquidation preference multiple.
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