Definition
What is liquidation preference?
A liquidation preference decides who gets paid first, and how much, when a company is sold or wound down. Investors with a 1x preference get their money back before common shareholders receive anything.
Most venture deals use a 1x non-participating preference: the investor takes either their money back or their percentage of the proceeds, whichever is higher. Participating or multiple (2x, 3x) preferences are more investor-friendly and reduce what founders receive in modest exits.
General information, not legal, tax or investment advice.