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🌍 US & Europe · Cap table & fundingLiquidation preference
Also called: liq pref, 1x preference
In one line
A contractual right that pays preferred investors back a set multiple (usually 1x) of their money before common holders get anything in an exit.
In plain English
When the company is sold, investors take their guaranteed amount off the top first. Only what's left over is shared with common holders like you.
If you were explaining it to a 5-year-old
Your friend paid for the pizza and said 'if we resell it, I get my money back first.' If it sells for little, they take it all and you get nothing.
Why it matters when you sell
In a modest exit, preferences can swallow most or all of the proceeds, leaving common worth far less than the valuation suggests — a key reason employee shares trade at a discount.
Related terms
Put it to use
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Sources
A general market-practice term. See how we define and source the glossary in our methodology. General information, not advice.
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