2.0x Liquidation Preference

This problem tests your understanding of liquidation preferences, a core term in equity financing and venture capital deals. Candidates need to know how preferred stock can contractually sit ahead of common equity in a downside scenario, how that priority affects proceeds, and why investors negotiate these rights to protect capital when a company is sold, wound down, or otherwise liquidated.

Interviewers ask this because it checks whether you understand the economics of capital structure and the difference between ownership rights and payout rights. You should be able to reason through how preferred investors are treated relative to common shareholders, what the preference means in practical terms, and how deal terms shape the distribution of value in an exit.