A liquidation preference sets who gets repaid first when a company is sold. Preferred investors recover their money before other owners. In a big enough sale they usually convert and share instead.
What the film says
In venture capital, a startup can sell for millions, and its founders get nothing. The reason is the liquidation preference. Say two founders raise ten million. Investors get preferred shares. The deal: if it's ever sold, they get their money back first. Years pass. Growth stalls. The best offer is ten million. Investors go first. All ten. Founders get zero. Now say the sale is a hundred million, and those investors own a fifth. A fifth is twenty. That beats their ten. So they give up the preference, and share. The other owners split eighty. So why do investors care? The headline price doesn't say who gets paid. Read the order, not the price.
A simple example with round numbers, not advice. Terms vary by fund.
See an error?