Disclaimer: The thoughts and opinions expressed in this essay are my own and do not reflect those of my employer.
Table of Contents
Abstract
The Dinner Party That Cost Fifty Million Dollars
The Fundamental Architecture of Liquidation Preferences
When Preferences Become Weapons
The Healthcare Multiplier Effect
Reading the Tea Leaves in Term Sheets
The Math That Matters
Conclusion
Abstract
Liquidation preferences represent one of the most consequential yet frequently misunderstood components of venture financing in healthcare technology. This essay examines the mechanics of liquidation preferences and exit waterfalls through the lens of healthcare angel investments, exploring how these contractual provisions fundamentally alter the distribution of proceeds in acquisition and liquidation scenarios. Key topics include:
- The structural mechanics of participating versus non-participating preferences
- The multiplicative impact of preference stacks in multi-round financing scenarios
- Healthcare-specific considerations including regulatory exit constraints and strategic acquirer dynamics
- Quantitative modeling of waterfall scenarios across various exit multiples
- Practical guidance for angels navigating term sheet negotiations in the healthcare sector
The essay emphasizes that in healthcare deals, where exit multiples often cluster between two and four times invested capital due to regulatory complexity and buyer concentration, liquidation preference terms can swing outcomes by twenty to forty percent of total proceeds, making these provisions as important as valuation itself.
The Dinner Party That Cost Fifty Million Dollars
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