When a preferred class of stock is created for investors, one of the first things that they ask for is liquidation preferences. When the company is sold or goes out of business, the first dollars come back to them to pay them back their money and sometimes the multiple of the money that they put in before any of the other shareholders share in the revenues that come out of the sale or the liquidation of the company. This is a standard provision that is often asked for and sometimes you do grant it at least once. It is not an unreasonable request. And if you’re not strong enough and you want a good valuation for your company, sometimes you give this up.
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