Concept

Liquidation preference

Liquidation preference decides the order and amount investors get before common (founders and employees) on a sale or liquidation. Venture-backed founders should care this week because a term that sounds 'standard' can erase upside in a soft exit or down round. If you are in term-sheet talks, model the preference stack against realistic exit outcomes — not the deck's unicorn case.

Where founders get this wrong

• Assuming 1x non-participating is always harmless without checking seniority and multiples in the stack.
• Ignoring participating preferred or stacked prefs that quietly wipe common in mid outcomes.
• Negotiating valuation while leaving preference language unread until counsel's redline.