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fundraising

Liquidation Preference

Investor right to receive their money back first in an exit or liquidation event.

Liquidation Preference determines the order and amount investors receive in a liquidation event (sale, IPO, shutdown). A 1x preference means investors get their investment back before common shareholders. Participating preferences add complexity.

Tips

  • Negotiate for 1x non-participating
  • Avoid stacking preferences across rounds
  • Model exit scenarios with preferences

Related Terms

TERM SHEETCAP TABLEDILUTIONSERIES AVALUATION

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liquidation preference definition, liquidation preference explained, participating preference