THE PROBLEM: LIQUIDATION PREFERENCE OVER-HANG
In today’s economy many venture backed companies may now find that the liquidation preference associated with this venture money exceeds a fair estimation of the company’s value under any reasonable sale transaction. In other words, there is a “liquidation preference over-hang.” As a result of a liquidation preference over-hang, a company’s common stock, typically held by its employees, is essentially worthless. Companies with such a liquidation preference over-hang must develop new ways to motivate and retain their employees. Click here to read full article.