High Liquidation Preferences Are Still Rare but Rising

Heads up for founders - high liquidation preferences are still rare, but they are on the rise.

Across all the rounds raised by Carta companies last year, 95% had a liquidation preference of 1x or lower.

But higher liq prefs between 1.1-1.9x, or even 2x+, inched back into the picture after basically disappearing in the boom times of 2021.

(Note - a 1x liquidation preference simply means the investor is paid back their initial investment amount 𝘣𝘦𝘧𝘰𝘳𝘦 any common stock holders receive cash once the company exits. Common stock is usually held by founders and employees).

Couple clear patterns emerge from the 32,311 rounds in this analysis:

• High liq prefs are much more common in late-stage rounds than early-stage ones. Makes sense, the later companies should be much closer to an exit.

• Liquidation preferences over 2x are taking a little share from the 1.1x-1.9x liq prefs.

• Bridge rounds are 𝘄𝗮𝘆 more likely to see high liq prefs than primary rounds, particularly at the early and growth stages (not shown in chart).

The rise in liq prefs is deeply tied into the fundraising chill from last year - fewer primary rounds, more bridges, more negotiated structure in said bridges.

Early-stage founders - you can use this data to push back on onerous liquidation preferences in your seed or Series A extension talks. But investors do hold more leverage now than they did only 24 months ago.

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