How does a startup exit for $20-$50m and the founders and employees still get a $0 payout? You should understand this concept this before you join or found a startup. Let's talk about liquidation preference on shares. Liquidation preference is a clause included in a term sheet that VCs use to protect their investment. The clause states that, in the event of an exit, investors must receive a certain multiple of their investment amount back before any other shareholders are paid.