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Market Dynamics Keep Liquidity Preference In Check

In my post, Why Liquidity Preference May Vary, I touch on several factors that may cause a VC to require a higher liquidity preference multiple.

It’s worth noting that VCs do not operate in a vacuum – if other investors are willing to offer lower liquidity preference multiples, then the higher multiples won’t make it to the market.  As a result, multiples are likely only to vary (with any frequency) when there is a market wide shift in investor expectations.

This doesn't mean that some VCs wont require a higher liquidity preference for a specific deal - they simply may not want to do the deal without the higher preference.  However, if other VCs are interested, the entrepreneur may be able to work with investors who do not have the same liquidity preference requirements.

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