Stacked Preference
Stacked Preference occurs when distinct classes of preferred stock possess senior payment rights over other classes. It represents a hierarchy in the payment order during a liquidation event and is synonymous with Senior Liquidation Preference.
What it Means:
Stacked Preference is a term used by Indian founders to describe the multiple tiers of preferred stock that affect how proceeds are distributed under different circumstances. Comprehending this is essential for managing investor relations and guaranteeing fair treatment.
How to Calculate:
Understanding the terms stated in the shareholder agreement is necessary to calculate stacked preference. It is a complicated process that requires a careful examination of liquidation preferences in order to determine the payment order due to the hierarchy's intricacy.
Why Measure:
For Indian founders, measuring stacked preference is crucial because it affects shareholder returns in exit scenarios. Investor protection mechanisms play a significant role in shaping the financial structure of a company and often influence the negotiation table during funding rounds.
Examples:
Think about an Indian startup that has investors in its Series A and B rounds. Because Series B has a stacked preference, they will be paid back first in the event of a liquidation. If the company liquidates at INR 50 million, Series B, with a preference of INR 30 million, receives priority, exemplifying the dynamics of Stacked Preference.
For Indian founders, navigating stacked preference is like playing chess on the startup finance chessboard. This knowledge gives them leverage in talks, enabling them to work transparently and productively with investors in the ever-changing Indian startup scene.