Quote: -------------------------------------------------------------------------------- What the hell does the liquidation preference section really mean? Here's what's going on. What your investors are doing here is making sure they get paid out on a subpar exit. Let's say you raise series A 5 million at 5 pre for a 10 post and then sell the company for 8 a year later and through the magic of simple examples, you never vested any options so the series A owns 50% of the company in preferred stock and the common owns 50% of the company in common. On the 8 exit, your investors have to be able to turn around and look their investors in the eye and NOT say "we lost a million bucks but the founder made 4 million" because that would "suck" and nobody would invest in their fund again. The liquidation preference defines the order and quantity in which an exit is paid out. The investors with a "liquidation preference" get paid first AS DEFINIED IN THIS SECTION, and then others are paid out. --------------------------------------------------------------------------------
I am copy/pasting jufel's post here. Liquidation preference and interest are two different things. There is no annual interest accruing. It is more of a hierarchy of payments.
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