The phrase "a liquidation preference" is correct and usable in written English.
It is typically used in financial and investment contexts to refer to the right of certain investors to receive their investment back before other shareholders in the event of a liquidation.
Example: "In the event of a company sale, the investors will receive their returns first due to their liquidation preference."
Alternatives: "a liquidation priority" or "a payout preference."
Reckson issued 4,181,818 shares of Class A common stock in exchange for Series B convertible cumulative preferred stock with a liquidation preference of $100 million out of the company's $150 million outstanding.
Broadly, a liquidation preference determines who gets what when a company is liquidated.
There are several different approaches to solving this issue, the most elegant of which is to convert the notes into a different series of preferred stock (e.g., Series A-1), with a liquidation preference per share equal to the conversion price; however, for purposes of this post, it's enough for founders simply to be aware of this issue and how it relates to discounts and caps.
An investor who has put in money at a high valuation and protected it with a liquidation preference may be less inclined to accept a good takeover offer than earlier investors, including the founders, who may have received shares at a much lower valuation.
Capital efficiency matters, but entry level valuations do not since investors will have a liquidation preference.
A liquidation preference is a right given to a startup's early investors, who are typically venture capitalists.
Some of that comes down to practical questions about how much or when the firm will invest — it likes to be "first money in" and will write checks generally between $25,000 and $250,000 — as well as what rights it expects as an investor — pro rata rights for follow-on investment, as well as a 1x liquidation preference when a company sells.
In fact, in the Fenwick Survey, 9% of the preferred stock seed financings included a participating preferred liquidation preference (which is not founder friendly).
The key terms include the elimination of participation with preferred stock, a 1x liquidation preference, and single trigger vesting acceleration on acquisition.
Others demand a steep "liquidation preference", meaning that investors get a guaranteed return in the event of a sale or flotation, even before the founders and staff see a penny.Small wonder that the latter are feeling mutinous; investors have, after all, pushed start-ups to grow as fast as possible.
They would also benefit from a better liquidation preference in the case of an exit before Uber raised more money.
