Deemed Liquidation Event
A corporate transaction (like a merger or sale) that is treated as a liquidation for preference purposes.
Definition
A deemed liquidation event is a corporate transaction that triggers the liquidation preference waterfall even though the company is not actually being liquidated. Common deemed liquidation events include mergers, acquisitions, and sales of substantially all assets. The company's charter specifies which events qualify. This ensures that preferred stockholders receive their liquidation preferences in any major exit transaction, not just a formal wind-down.
Why it matters
Deemed liquidation events determine when the preference stack kicks in. If your company is acquired, merged, or sells most of its assets, preferred holders get their preferences first, just as if the company were shutting down. This directly affects your payout.
Example
A company is acquired via a stock-for-stock merger. Even though the company is not being liquidated, the merger is a deemed liquidation event. Series B investors take their $25M preference from the deal proceeds before common holders receive anything.