Business Pitch Dictionary by pitch.dog
Term-sheet economics · Core

Liquidation preference

Also called: liquidation pref

ELI5

Investors may get paid before common shareholders in an exit.

Used in conversation

“The term sheet proposes a one-times liquidation preference.”

Definition

A preferred holder's right to receive a stated amount before or in priority to common holders in a liquidation or sale.

Here “Liquidation preference” means: A preferred holder's right to receive a stated amount before or in priority to common holders in a liquidation or sale.

Pitch context

You will see “Liquidation preference” in fundraising decks, data rooms, term sheets and investor conversations when the discussion reaches term-sheet economics.

Why it matters: In term-sheet economics, a loose definition can change rights, obligations, approval, disclosure or enforceability.

Caution

Meaning, enforceability and required process vary by jurisdiction and agreement; this definition is not legal advice.

Connected terms

  • Participation rateLiquidation preference sets priority return; participation determines whether preferred holders also share further proceeds after that return.
Sources & evidence · 5

Direct term-level sources and supporting source families.