In venture, the standard liquidation preference is 1x - that is, the investor will receive their money back before others on the cap table see any cash benefit in a liquidity event (typically M&A or IPO).
But in this time of turmoil, liquidation preferences over 1x are creeping back into the conversation. Two variables matter a lot here: the stage of the company and the type of round being completed.
In Early Stage (Seed & Series A), primary rounds with high liq prefs are still rare. But bridge rounds with this term have nudged upwards over the past 2+ years.
In Growth Stage (Series B & C), high liq prefs in primary rounds are showing up twice as often today as they did in 2022.
In Late Stage (Series D & beyond), the data is a little noisy - but these liquidation preferences are definitely on the rise.
So founders - don't be surprised if your negotiations with VCs include discussion of 1.5x, 2x, even 2.5x liquidation preferences, particularly if you're raising a bridge round in any stage after Series A. Investors hold more cards in this slow fundraising environment than they did in prior years.
Big thank you to Hamza for holding down the newsletter while I was gallivanting around Europe! It was too early in the season to spot any VCs, but I'm told they are a sight to behold come July and August.
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Peter Walker
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