non-participating 1X liquidation preference
What's market (statistically common) for liquidation preferences in startup investment terms in the US?
non-participating 1X liquidation preference
In plain English, this means that when the startup is sold, the investor gets 100% (1X) of their money back and done.
As a (overly) simplified example, say your startup is sold for $10M and an investor had invested $5M. Investor gets their money back ($5M) and you walk away with the remaining $5M. - not the homerun you were looking for but you get something for the hard work and possibly another swing at bat. With a 2X multiple, in the same deal, investor gets $10M (2X $5M) and you walk away with nothing.
Non-participating means that investors can't 'double dip' - once they get their money back they walk away.
Angel List and Carta both have great write ups on Liquidation Preferences if you want to dig deeper. (Google Search shows more than 400 thousand webpages on this topic)
Our meta analysis on public data points for what is market. đź‘“
Multiples
A bit old (2016) but CB Insight reported that "96.7% of US tech companies in had 0-1X liquidation preferences" <CB Insight>, "A 1X liquidation preference is most common" <Angel List>, "1X multiple is the most common market standard" <MicroVentures>, "A 1X multiple- standard for mid-stage companies"<Wellfound>, "[watch out for] anything above a 1X liquidation preference" <Carta>
Participation
"as of 2014, only 31% of deals included participating preference"<WSGR>, "participating liquidation preferences are less common than non-participating liquidation preferences"<fullstackmodeller>
Recent data from the UK but seems to align with the US .
Glen Waters - UK 2022 Liquidation preference : LinkedIn Post
Update: 1/11/24 : Carta published more data on this . <State of startups 2023>
- Of the deals done in Q4 2023
- 6.1% had "participation"
- 1.6% had had "liquidation preference" higher than 1X