Liquidation Preference and Follow-On Financing

The video tutorial explains the concept of liquidation preference in Series A funding and its impact on subsequent financing rounds, such as Series B. It discusses how new investors may react to existing liquidation preferences and introduces the cramdown mechanism as a solution. The cramdown involves the Board of Directors enforcing new terms on Series A shareholders, often requiring them to exchange their shares for those of Series B. The tutorial also highlights how Series B financing can create additional value, making it beneficial for Series A investors to agree to new terms.

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