Deal Terms
Liquidation Event
Any transaction that triggers distribution of proceeds to shareholders — including company sale, merger, or dissolution.
A liquidation event is any transaction or circumstance that triggers the distribution of company value to shareholders according to the liquidation waterfall. Common liquidation events: sale or merger of the company (most common), an IPO (sometimes defined as a liquidation event in early term sheets, but often carved out), or actual dissolution and wind-down of the company. Liquidation events trigger preferred stock liquidation preferences — investors receive their preferences before common shareholders receive anything. The definition of 'liquidation event' in a company's charter is critically important: if an IPO is defined as one, investors can choose between their liquidation preference and converting to common stock; if it's not, all preferred automatically converts at IPO.