Understanding Liquidation Preference in Venture Capital Financing

Liquidation Preference — The Holloway Guide to Raising Venture Capital 🔗

You may see “liquidation preference” as a term in your term sheet, “liquidation rights,” or simply “liquidation.” This is a big one.

The text provides an explanation of liquidation preference, a crucial term in venture capital financing. It outlines the concept of liquidation preference, its practical implications for founders and executives, and the details of the liquidation preference stack. The text also touches on the importance of conversion rights and their potential impact on IPOs.

Liquidation preference means preferred shareholders get paid before others, often expressed as a multiple of the original investment.
Founders need to explain liquidation preference to new investors and seasoned executives.
The liquidation preference stack defines the order in which preferred stockholders are paid in a liquidity event.
Conversion rights have downstream consequences and can complicate matters, potentially affecting IPOs.