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Do venture capital investors' liquidation preferences apply when a company is acquired?
Generally, yes. If a company has sold preferred stock to raise capital, the purchase price is returned to the investors upon liquidation. Most venture capitalists require this preferential amount to be returned upon a sale or merger of the company as well, before any cash or acquiror's stock is distributed to the founders and other common stockholders. In addition, often the preferred holders share in the pool to be distributed to the common holders as if they had converted their preferred stock into common.
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