Liquidation preference
The right to be paid first at exit. The single biggest reason headline valuation is not the same as per-share value.
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A liquidation preference gives an investor priority over common shareholders when a company is sold or liquidated. The common form is a 1x non-participating preference: at exit the investor takes the greater of their money back or the value of their shares if converted to common. It protects against an exit below the price the investor paid.
Variations push further. A participating preference returns the capital and then shares pro rata in what remains. A multiple such as 1.5x or 2x guarantees a minimum return before anyone else is paid. In a weak exit these terms can hand investors an outsized share while founders absorb the loss, which is why a headline valuation tells you nothing about how proceeds are split.
Modelling the split across exit scenarios is the cap-table waterfall, covered with worked examples in Liquidation Preferences and the Cap-Table Waterfall. Related protection appears as anti-dilution.
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