Liquidation Preferences
When a startup is running low on cash, and can’t get profitable, it has two options: raise capital or sell the business. In a challenging funding market—like 2023, 2008, or 2001—both options are problematic. Raising more capital may require a down round. And as we’ve previously discussed, down rounds are incredibly painful. Selling the business and cashing out might look better than a down round. But let’s look a little closer at one of the…