Liquidation Preference

The liquidation preference governs the order and amount in which investors are served from the proceeds ahead of other shareholders on an exit or a liquidation. The market standard is a 1x non-participating preference (the investor receives the greater of its investment or its pro-rata share).

Participating or tiered (multiple) preferences strengthen the investor’s position at the expense of founders and employees. The liquidation preference is closely linked to anti-dilution, vesting and the waterfall logic and is decisive for the actual payout at exit.