In this AlphaTakes video, Matt Storms discusses the basics concerning liquidation preferences. He provides a summary of the different types of liquidation preferences that are typically negotiated in emerging technology company transactions. He also provides a spreadsheet illustration of the effects of the different types of liquidation preferences.
Here are the key takeaways from this video:
(1) A liquidation preference is a right to all or a portion of the assets of a company upon its sale over the rights of others
(2) The three most common types of liquidation preferences for an emerging technology company are
(a) non-participating preferred (most common in early stage deals)
(b) participating preferred
(c) participating preferred with a cap
(3) Liquidation preferences are important