Liquidation Preference
The clause deciding who gets paid first in an exit — the most consequential deal term after valuation.
Definition. A liquidation preference is the contractual right that determines who gets paid first, and how much, when a company is sold or wound down — the term that governs the order and size of payouts in an Israeli exit.
Expressed as a multiple (1x is standard; 2x and above signal investor leverage) and as participating or non-participating, the liquidation preference is the most consequential economic term in a venture deal after valuation. In a strong exit it barely matters; in a flat or down-round exit it decides whether founders and employees see anything at all. Israeli cap tables — frequently structured through a Delaware C-Corp — carry preferences negotiated across multiple rounds, and stacked preferences from later, higher-priced rounds can quietly subordinate everyone below them. When a Secondary Sale or acquisition prices below the preference stack, common shareholders learn what their paper was actually worth.
