Even among shareholders, a group of insiders in a conference room can self-deal to keep all the money for themselves and screw common stockholders who had no representation in that room.
Which isn't to say preference stacks (like debt stacks) can't get absurd when a failing company is doing anything it can to stay alive, but standard investor terms (1x liquidation preference) simply mean you're first in line to get your money back if the company is liquidated for less than the price you paid.
The self-dealing bit is generally already illegal and orthogonal to liquidation preferences.
Otherwise, the risk is investors put in $1m for 10% of the company, only for the founder-CEO to decide a month later - perhaps totally genuinely and honestly after initial R&D - that the entire business plan wasn't viable after all and the best thing for stockholders is to liquidate the company... and then walk away, personally, with $900k while returning only $100k to the investors. And obviously because this scenario is possible, there would be great temptation among dishonest founders to "realise" their companies "aren't viable" in order to walk away with all the cash. Something has to protect investors from this outcome, and remove the perverse incentive on founders to promptly liquidate after getting investment. A liquidation preference where the investor gets repaid before any distributions go to other stockholders is one way of achieving that protection; what alternative would you prefer?
As for liquidation preferences with a multiplier (i.e. we get paid back X times our investment before anyone else gets anything), eh, I wouldn't outright make them illegal, but it's less clear to me they are always serving a legitimate purpose, and they may grossly mislead the public about the actual valuation of the company implied by a given funding round AND mislead naive common stockholders and options holders about how much of the company they really own and what they can really expect to make in an exit.
This is actually percisely one of the main ingredients of a "(whatever) free market" - to put in a contract what you want as long as it is not against the law.
?
But new money may allow buyouts of existing at that time so early team or investors can cash out a bit early
And common doesn't cash out till IPO or private market equivalent, or yes, gets screwed
Hopefully they took advantage of the discounted beer.
“One too many” ills shatters the benchmark of “life is good”. Not good enough (that much … you may actually understand).
We have been deficient, through and through.
can you prove that it's free-market capitalism and multiparty democracy? because i see this opinion espoused a lot online.
You entrench yourself and don't want to move when you need to
Insane surveillance and indoctrination aside...but still prosperity?