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If you have preferred shares, you often have a "2X liquidation preference"[1] or other multiple. This means that you are guaranteed to get at least two times y
by Spoom 8y ago
If you have preferred shares, you often have a "2X liquidation preference"[1] or other multiple. This means that you are guaranteed to get at least two times your initial investment in a liquidation event, even if the value of your shares at the time is less than that amount.
This can (and often does) eat into the common stockholders' (e.g. employees) liquidation amounts.
1. https://www.businessinsider.com/how-liquidation-preferences-work-2014-3 https://www.businessinsider.com/how-liquidation-preferences-...
- pge 8y agoIn my experience (~ 20 years at institutional VC funds), 2x preference (or anything above 1x) is extremely rare. It comes up only when there is a distressed situation, and the investors do not believe that they will receive any money beyond their liquidation preference (i.e. other junior liquidation preferences will consume the rest of the proceeds from the sale of the company).
- PeterFBell 8y agoI saw it around the dot-com days along with a lot of other extremely dubious terms for extremely desperate founders - at least in NYC. Agreed that more than a 1x liquidation preference these days would generally be surprising, but in a low end scenario or with a few big rounds, all it takes is a 1x to wipe out any upside for founders and employees, but if you're deemed worth it, the acquiring company can offer you a worthwhile incentive to stick around.