Founders - if an investor in your seed round asks for a 1.5x or 2x liquidation preference, find another investor.
Have gotten a couple DMs recently pointing to early stage deals that come with high liquidation preference and it's just not market! You can say no thanks.
Only 3% of Seed + Series A deals had liq pref over 1x last year (and only 1% of primary rounds).
𝗡𝗼𝘁𝗲𝘀
Liquidation preference of 1x means effectively the investor gets paid back their initial capital when the company exits. A 2x would mean the VC gets twice their initial capital back before anyone else shares in the proceeds.
Investors usually have to choose between their liquidation preference and their percentage ownership. So if a company exits for $100M, and the investor invested $10M but owns 20%, they will take the ownership ($20M) over the liq pref.
Buuut sometimes investors get "participating preferred" where in the scenario above they'd get their original $10M back AND THEN 20% of the remaining return. Double dipping, very uncommon.
Basically the venture world has organized itself around 1x liq pref as the fair standard. Anything above that better be a distressed situation or a late-stage financing.
Otherwise it's just kinda predatory.
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