Share and share alike, except in Startups: Liquidation Preferences for VCs
Startup founders beware. Agreements with VCs are full of terms and conditions that benefit them when a startup valuation is not doing as well as expected. Liquidation preference are preferred shares that VCs get that when they invest in a startup that give them preference over the shares of the founders and management team. These preferred shares behave like equity if the startup valuation is rising but if the acquisition value is below a threshold amount, then these shares can act like debt on the startup and its founders. So, in certain cases, when the acquisition prices are lower than expected, all the sale proceeds go to the venture capitalists and nothing is left for the founders.
See CNBC article