Liquidation preference

Also called: liquidation pref, liq pref, 1x preference, 1x liquidation preference, liquidation preferences

A term that sets who gets paid first, and how much, when a company is sold or shut down. It usually lets investors with preferred stock get their money back before holders of common stock receive anything.

For example: Investors put in 2 million dollars with a 1x liquidation preference. The company later sells for 3 million dollars. The investors can take their 2 million first, and the other shareholders split the remaining 1 million.

Connects to 4

Preferred stock vs common stock Concept
Exit Concept
Term sheet Concept
Priced round Concept

This glossary is plain-language orientation, not legal or financial advice. Before you decide on a company structure, a contract, taxes or a fundraising deal, talk with a lawyer or an accountant.