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Financial Empowerment

Liquidation Preference Multiple

A “multiple” is simply a single numerical factor or multiplier. One way multiples are useful in financial analysis is to make easy comparisons between different companies. Multiples can also be used to estimate the value of a business within an industry. For example, many consumer product companies are valued by a multiple of revenues, though higher profit margin companies tend to be valued at higher revenue multiples.

A “preference multiple” is the factor of the investor’s investment amount that is due at the time of investment exit event before other shareholders receive a payout. So if an investor receives a preference multiple of two times (“2X”) original invested capital of $2 million, then the investor would receive a minimum of $4 million plus any accumulated dividends before other shareholders get a penny. A preference multiple of one times (“1X”) invested capital is common in venture capital transactions.

Business Model Pro-forma Financial Statements
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