Liquidation Preference
The right of preferred shareholders to receive a set amount, often a multiple of their investment, in priority to all others on a liquidation, sale, acquisition, merger, amalgamation or demerger.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Cash BurnThe rate at which a start-up spends its cash — set against the money in the bank, it says how many months of runway are left before the next round has to close.
- CIV schemeA separate one-deal scheme of a Category I or II AIF through which accredited investors of that scheme co-invest alongside the fund in a single investee company, without a portfolio manager registration.
- Compliance Test ReportThe annual self-certification an AIF manager prepares in SEBI's prescribed format, testing the fund against the AIF Regulations and routed through the sponsor and trustee for comment.
- Customer Acquisition CostThe average cost of winning one new customer — read against customer lifetime value, it says whether a start-up is buying revenue at a profit or at a loss.
- Full RatchetThe harshest anti-dilution formula: after a down round, the earlier investor's preference shares convert at the lowest price the company has issued at, as though it had invested at that price all along.
- Investor Due DiligenceThe investigation an investor runs on an AIF and its manager before committing capital — the process of investigation and evaluation into the details of a potential investment.
Where this is taught
Free preparation for NISM Series XIX-DRelated terms
- Right of First RefusalA shareholder right to match the best outside quote a selling shareholder has obtained — the holder sees the price first and may buy at it, or refuse and let the sale proceed.
- Full RatchetThe harshest anti-dilution formula: after a down round, the earlier investor's preference shares convert at the lowest price the company has issued at, as though it had invested at that price all along.
- Option poolThe block of shares a company sets aside for employee stock options — its size matters to an investor because every option exercised dilutes the investor's stake.
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