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Following on from our post on cap tables, here we give a brief overview of liquidation curves (also known as liquidation tables or liquidation preference charts)
A liquidation curve illustrates the returns to each equity or debt investor (or group of equity and debt investors) based on different exit valuations. It can either be displayed as a table - showing outcomes at a discrete set of exit valuations; or better still, can be shown graphically, illustrating returns across a range of outcomes. Either way, you need to start with the cap table.
Our preference is to display liquidation curves as charts. We find they "tell a better story" of how incremental returns are shared out:
This example liquidation curve has been constructed based on data from a popular blog post by Fred Wilson, but any cap table can be turned into a liquidation chart. To construct a liquidation curve or liquidation chart, you need to determine all the outcomes and interactions of the financing instruments that invested in a given company. This may not be straight forward...
You may like to see our glossary of corporate finance terms and cap table terms, to demystify some of the language used in financing rounds
You'll be pleased to know that Reportally constructs your Liquidation Charts from your Cap Table for you. All you need to do is fill in your cap table details, sit back, and relax...
So why not start now!