But if the company sold for less than $5m, the founders would get nothing?
Probably ignorance here, but if the company sold for less, say $4m are the founders now in debt for the remainder of the 5x agreement?
Probably ignorance here, but if the company sold for less, say $4m are the founders now in debt for the remainder of the 5x agreement?
Liquidation preference at its core is an instrument to protect the investor. Imagine the following scenario:
An Investor gives you $1m for 50% of your company. A year later it sells for $1m (because it wasn't a hit). The investor just lost $500k you made +$500k.