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Is it common for angel investors to ask for liquidity preference with participation?

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yes, it is common – TimJ♦ Jul 21 '10 at 4:14
thanks. glad to know this as i plan to offer it to my angel. – rih Jul 21 '10 at 5:28
Can someone define what the clause means? – John Bogrand Jul 21 '10 at 21:02
@john a liquidation preference means that those shares get paid out first if the company is sold. e.g. if someone has $500k with liquidation preferences for 10% of a company (assuming other 90% is non-preferred) and the company sells for only $1m, then the preferred investor will get all $500k back with the remaining $500k covering the other 90%. – jtauber May 14 '11 at 23:49

3 Answers

up vote 1 down vote

Yes, it is increasingly common.

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up vote 1 down vote

In answer to @John

A liquidity preference is a clause that most Angel or VC investors ask for that states they will get paid out first if the company comes into money, i.e. from a buy out or a sale of shares

In answer to @rih yes it is very common

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Thanks, Roger. Is it also common to have more than 1x preference aside from participation? – rih Jul 23 '10 at 5:32
Hi rih, I honestly don't know if it is common but it has certainly been done before. If you are deciding to do it or not you have to be careful about the multiple you think you will get on your exit. The higher the preference the less left for participation. – roginla Jul 23 '10 at 17:37
up vote 0 down vote

I believe it is quite common.

We initially took a small round from a couple of angels (< 5% each) and it was just common stock. Recently we took a much larger second round (> 10%) and it had liquidation preferences.

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