how does liquidation preference apply to startup companies 
there does not need to be an actual liquidation or bankruptcy of a startup company for liquidation preference to apply in venture capital contracts a sale of the company is often deemed to be a liquidation event if the company is then sold at a profit liquidation preference can also help venture capitalists be first in line to claim their share of the profits the bottom lineliquidation preference is a contract clause that determines who gets paid first and how much gets paid when a company must be liquidated e g selling the company venture capitalists are an example of investors or preferred shareholders who are usually paid back first ahead of holders of common stock and debt 