Carve-Out
Definition
Carve-Out: A carve-out is an allocation of acquisition proceeds set aside for key employees, outside the normal cap table distribution. It's used when liquidation preferences would leave employees with little or nothing, and helps retain key talent through the acquisition process.
Example Usage
“The board approved a 10% carve-out for key employees since the exit price was below liquidation preferences.”
Common Misconceptions
Related Terms
Liquidation Preference
Liquidation preference determines how proceeds are distributed when a company is sold or liquidated. Investors with liquidation preference get paid be...
Acquisition
An acquisition occurs when one company purchases another, either for cash, stock, or a combination. For startups, being acquired is a common exit path...
Exit
An exit is an event that allows startup investors and shareholders to convert their equity into cash. Common exits include acquisition by another comp...
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