--- title: "Liquidation Preference, Definition | MedTech Terms" description: "Right of preferred shareholders to be paid before common in an exit. Plain-English Investment & Finance definition for MedTech teams, with examples and related" lang: en json-ld: | { "@context": "https://schema.org", "@graph": [ { "@type": "DefinedTerm", "@id": "https://medtechterms.com/terms/liquidation-preference#term", "name": "Liquidation Preference", "description": "A liquidation preference is the multiple of original investment (typically 1x) that preferred shareholders receive before common shareholders see any proceeds in a liquidity event. 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[Home](/) 2. / 3. [Terms](/terms) 4. / 5. [Investment & Finance](/terms?cat=Investment%20%26%20Finance) 6. / 7. Liquidation Preference [All terms](/terms) Investment & Finance [Startup Lifecycle](/ecosystems/startup-lifecycle) # Liquidation Preference Right of preferred shareholders to be paid before common in an exit. Reviewed by [Christian Espinosa, Founder, Blue Goat Cyber](/authors/christian-espinosa) Last reviewed May 5, 2026 ## Definition A liquidation preference is the multiple of original investment (typically 1x) that preferred shareholders receive before common shareholders see any proceeds in a [liquidity event](/terms/liquidity-event). 'Participating' preferred also share in remaining proceeds pro-rata; 'non-participating' must choose between the preference and converting to common. ## What this means in practice In a strong exit, preference rarely matters. In a modest or down exit, stacked preferences across multiple rounds can leave founders and employees with nothing - a 'preference overhang.' Standard MedTech terms today are 1x non-participating. ## Examples - A company sells for $80M with $60M of 1x non-participating preferred raised. Preferred takes $60M; common splits $20M. - Same exit but with 2x participating: preferred takes $120M (capped at proceeds), wiping out common. Common pitfalls - • Accepting participating preferred 'just for this round' - it sets a precedent for every subsequent round. - • Not modeling waterfall scenarios at multiple exit values. ## Cross-references ### Part of A larger framework or document this term belongs to. - [ Term Sheet ](/terms/term-sheet) ## Related terms Grouped by theme ### Editor's picks · Hand-selected related concepts [ Investment & Finance Preferred Stock Class of equity with rights superior to common stock. ](/terms/preferred-stock)[ Investment & Finance Term Sheet Non-binding outline of the key economic and control terms of an investment. ](/terms/term-sheet) ### More in Investment & Finance · Same category [ Investment & Finance 409A Valuation An independent fair-market-value appraisal of common stock used to set tax-compliant strike prices for employee stock options. ](/terms/409a-valuation)[ Investment & Finance Anti-Dilution Protection Adjustment that protects investors if the company raises a future round at a lower price. ](/terms/anti-dilution)[ Investment & Finance Bridge Round Interim financing between priced rounds, usually convertible. ](/terms/bridge-round)[ Investment & Finance Burn Rate Rate at which a company spends cash, typically expressed monthly. ](/terms/burn-rate) Cited by Where this term appears across MedTech Terms. Ecosystems (1) - [Startup Lifecycle](/ecosystems/startup-lifecycle) ## Primary references 3 sources Link health: 3 verified · last checked 2026-06-20 NVCA· 1 SVB· 1 PitchBook· 1 1. [1 NVCA model docs Verified NVCA · nvca.org ](https://nvca.org/model-legal-documents/) 2. [2 Silicon Valley Bank - Healthcare Reports Verified SVB · svb.com ](https://www.svb.com/trends-insights/) 3. [3 PitchBook - MedTech Coverage Verified PitchBook · pitchbook.com ](https://pitchbook.com/news/articles/topic/healthtech) Inline markers like \[1\] jump to the matching reference above. Sponsor note ### Diligencing a MedTech cybersecurity posture? Blue Goat Cyber supports investors and acquirers with cybersecurity diligence on connected MedTech assets. [Book a 30-minute discovery session](https://go.bluegoatcyber.com/meetings/blue-goat-cyber/discovery-session) - No obligation - Expert-led from minute one - NDA available on request MedTech Terms is a community resource sponsored by [Blue Goat Cyber](https://bluegoatcyber.com). Definitions are independent of any vendor. On this term Category Investment & Finance Sources 3 Updated 5/5/2026 [Compare with another term](/compare?a=liquidation-preference) Learn in 60 seconds Card Lesson Quiz Right of preferred shareholders to be paid before common in an exit. - · In a strong exit, preference rarely matters. - · In a modest or down exit, stacked preferences across multiple rounds can leave founders and employees with nothing - a 'preference overhang.' Standard MedTech terms today are 1x non-participating. - · 'Participating' preferred also share in remaining proceeds pro-rata; 'non-participating' must choose between the preference and converting to common. Remember this Watch out: Accepting participating preferred 'just for this round' - it sets a precedent for every subsequent round. Related terms - [Term Sheet ](/terms/term-sheet) - [Preferred Stock ](/terms/preferred-stock) You may also need Auto-suggested from Investment & Finance and shared keywords. - [Earn-Out ](/terms/earn-out) - [Series A / B / C Financing Rounds ](/terms/series-funding) - [409A Valuation ](/terms/409a-valuation) - [Employee Option Pool ](/terms/option-pool) - [Liquidity Event ](/terms/liquidity-event) - [Pre-Money Valuation ](/terms/pre-money-valuation) [All Investment & Finance terms](/terms?cat=Investment%20%26%20Finance) MedTech Terms An authoritative, plain-language reference for the regulatory, quality, cybersecurity, and software terms that shape modern medical devices. 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