Liquidity Preference
Content
Definition
Liquidity Preference is the terms that specify which investors get paid first and how much they get paid in a liquidity event.
Usage and Context
Liquidity preference matters in business deals, especially when a company is sold or merged. It sets the order of who gets their investment back first.
Frequently asked questions
- How do you calculate liquidity preference? To figure out liquidity preference, you should look at the investment agreement. It tells you the order and amount investors get paid in big financial events.
- What is liquidity before IPO? Liquidity before an IPO is limited. Investors usually can`t sell their shares easily until the IPO happens.
- What is an example of liquidity preference? Imagine a startup sells for $1 million. If investors have a 2x liquidity preference, they get their investment doubled before others get paid.
Benefits
Liquidity preference protects investors by ensuring they get a certain amount back first. It gives them confidence to invest.
Conclusion
Liquidity preference sets the payout order in big financial events. It`s key for investors wanting to safeguard their investments.
