What is Liquidation Preference?
A clause in a venture contract that dictates the payout order in case of a corporate liquidation, sale, or bankruptcy. It guarantees that investors get their money back before common shareholders (founders and employees) get paid.
Understanding Liquidation Preference is critical for startup founders navigating the venture capital ecosystem. Whether you are actively fundraising or just planning your capital strategy, grasping these terms helps you negotiate better deals and find the right investment partners.
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