Liquidation Preference
Definition
Liquidation Preference: Liquidation preference determines how proceeds are distributed when a company is sold or liquidated. Investors with liquidation preference get paid before common shareholders. A 1x non-participating preference means investors get their money back OR convert to common stock, whichever is higher.
Example Usage
“With $10M in liquidation preferences and a $15M exit, founders only received $5M after investors were paid.”
Common Misconceptions
Related Terms
Term Sheet
A term sheet is a non-binding document outlining the key terms of a proposed investment, including valuation, investment amount, board composition, li...
Preferred Stock
Preferred stock is a class of ownership with rights superior to common stock, typically held by investors. Preferences usually include liquidation pre...
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...
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...
Related Tools
Explore More Resources
Browse Tools
Discover 100+ vetted tools for every stage of your startup journey
Explore all toolsBuild Your Stack
Take our personalized quiz to get tool recommendations for your startup
Start the checklistRecommended Reading
Curated books to help you learn, grow, and succeed as a founder
View book recommendationsListen & Learn
Top podcasts covering startups, product, growth, and entrepreneurship
Discover podcastsHelp us improve this definition
See something that could be clearer or more accurate? Let us know.