suppliers and utility companies), bondholders, preferred shareholders and, finally, common shareholders.The common shareholders are last because they have a residual claim on the assets in the firm and are a tier below the preferred stock classification.Common shareholders often receive nothing at all, as there is usually very little left over once a firm has paid its debts.The amount of the payment a common shareholder will receive is based on the proportion of ownership he or she has in the bankrupt firm.The common stock holders split the remaining .5 million. In recent years, it's become the most common liquidation preference for VC firms investing in startups. The people who bring the capital should have some protection. If that company then sells for million, the VC gets more than 50% of the million. Even if the company sold for 0 million, common stock holders would only split the remaining million.In some cases, the preferences are structured so that the investors would then even get 50% of the remaining million.
Imagine a VC that buys 50% of a company for million, for a 0 million post-money valuation.
One of those three ways is through the difference between "preferred stock," which investors get, and "common stock," which employees get.
Among other special rights, the owners of preferred stock get "liquidation preferences." What that means is that when the startup sells, or liquidates, the owners of preferred stock get a guaranteed amount of money from the sale.
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