Please explain liquidation preference in termsheets used by private equity funds
1 Answer(s)
Binny
Hi Gaurav, The math is as follows -
Sale Price = $2 billion
VC gets 2x liquidation preference on the $100mn investment = 2x100 = $200mn
Cash left = $2 billion - $200mn = $1.8 billion
VC will then get 15% of this $1.8 billion = $270mn
So total cash VC gets = $200mn (from liq.pref) + $270mn (from 15% equity) = $470mn
Sep 03 2012 02:18 PM
Sale Price = $2 billion
VC gets 2x liquidation preference on the $100mn investment = 2x100 = $200mn
Cash left = $2 billion - $200mn = $1.8 billion
VC will then get 15% of this $1.8 billion = $270mn
So total cash VC gets = $200mn (from liq.pref) + $270mn (from 15% equity) = $470mn