Acquisition
When another company purchases your company, providing a potential payout for shareholders.
Definition
An acquisition occurs when another company buys your company, either for cash, stock, or a combination. This is the most common exit path for venture-backed startups (far more common than IPOs). In an acquisition, the purchase price is distributed according to the cap table and liquidation preferences. Cash acquisitions provide immediate liquidity; stock-for-stock deals give you shares in the acquirer.
Why it matters
In an acquisition, the total price minus liquidation preferences determines what common stockholders receive. A $200M acquisition sounds great, but if investors hold $150M in preferences, employees only split $50M. Always consider the liquidation stack.
Example
Your company is acquired for $100M cash. Investors have $40M in 1x non-participating preferences. They take $40M first (since 40% of $100M = $40M, they are indifferent). The remaining $60M is split pro-rata among all shareholders including employees.