Raising money
Liquidation preference
A liquidation preference is an investor's right to get their money back before founders and employees are paid anything when the company is sold or shut down.
Also called liq pref
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It decides who is paid first at a sale, and how much each investor takes before anyone else is paid. If their shares are participating, they also take a share of what is left. If not, they choose between their money back and an ordinary share of the sale.
This is not legal or tax advice, check with a lawyer or accountant.
What recent Cooley data says
Most deals keep it simple: in the 166 venture financings Cooley handled from April to June 2026, 95.8% had a 1x preference, meaning investors get back what they put in before others are paid.
- Deals with a 1x liquidation preference, April to June 2026: 95.8%.
- Deals with non-participating preferred stock, where investors take their money back or their share of the sale, not both, April to June 2026: 96.4%.
Source: Cooley, Venture Financing Report Q2 2026. 166 financings Cooley handled, not the whole market. As of 5 November 2026.
When this shows up
Example, not a real founder: your company is bought for an amount that sounds large. After the investors' preferences are paid first, much less is left for common shareholders, meaning you and your team.
What to do next
Add up the preferences across all your investors and compare that total with a sale price you would realistically accept. The gap is what is left for common shareholders, minus any share that participating investors also take.
Go deeper
Participating preferred with a 1x cap, and what it costs you
Each clause it finds explained in plain words, with the ones that may be worth raising with a lawyer pointed out.
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