[smohnot]

Leo does a great job explaining why VC's want liquidation preferences.

But founders/employees want them too! With all the crazy founder-friendly deals of 2021, I never heard of one in the US without a liquidation preference.

Why? Liquidation preferences allow the VC bought securities to be treated as "preferred" and reduce the common stock price in the 409a valuation report, allowing early employees to get options at low prices.

If VC's invested in common stock the strike prices would be much higher, making it less lucrative to be an early employee.

In parts of Europe there is different tax treatment for options and employees generally don't own as many shares due to it... and some of those companies don't have liquidation preferences. I believe Klarna (Sweden) doesn't have preferred shares, meaning the huge swing in valuation they had over the past few years is not as bad as it seems.

TBH the whole 409a thing is a charade & we probably need to clean up how we do accounting & taxes but until we do, preferred shares are here to stay.