Liquidation preferences are a hugely important term that protects investors from being screwed over by founders. Without it, nothing stops an unethical founder from raising 800k at a 8M cap, and turning right around and letting the company get acqui-hired for 4M a month later, pocketing $3.6M and leaving the investors with half their money.
With a liquidation preference; investors get their money back, the founders take their $3.2M, and nobody walks away feeling screwed over.
[Note: this example works exactly the same if you multiply the numbers by 100.]
As an investor; I don't invest unless I have 1x liquidation preference and pro-rata rights. These terms are standard because they're fair and they're critical for protecting the investor.
With a liquidation preference; investors get their money back, the founders take their $3.2M, and nobody walks away feeling screwed over.
[Note: this example works exactly the same if you multiply the numbers by 100.]
As an investor; I don't invest unless I have 1x liquidation preference and pro-rata rights. These terms are standard because they're fair and they're critical for protecting the investor.