Liquidation Preference
A clause giving certain investors the right to be paid first in an exit or wind-down.
A liquidation preference determines who gets paid, and how much, when a company is sold or liquidated. A 1x non-participating preference returns the investor’s money before others share the remainder; participating preferences let them take their money back and share again. Aggressive preferences can leave founders with little in modest exits.
Examples
With a 1x preference, an investor of £1m gets £1m back before common shareholders. — A 2x participating preference materially reduces founder proceeds in a small exit.
How it relates to The Startup Foundry
Understanding these economics is part of investment readiness. The Foundry helps founders enter negotiations informed so deals are fair on both sides.