Liquidity Preference Multiples

This is a common term in venture capital funding of start-ups. When an investor first funds the company, they typically get their preferred stock first—ahead of when the common shareholder would get his stock.

But often in deals where the founder wants a much higher valuation than the venture capitalist wants to pay because he thinks his company will be worth billions… then the founder offers a liquidity preference multiple; that is, the venture capitalist who put in $3 million at funding, gets a 3x liquidity preference or $9 million back before the founder who owns common shares gets a dime.

So basically, the person who invested the most gets preference.