Most people at Brex will lose on this.

Let's talk about “Liquidation preference”.

Means investors get paid before founders during an exit.

The basic math: investors get their money back first, then everyone else splits what’s left.

Usually 1 times.

Sometimes 2 times or 3 times.

Occasionally, “participating preferred”... get money back PLUS percentage of remaining proceeds.

This means founders can build a $100 million company and get nothing when it’s acquired if venture capitalists structured it right.

Here’s how it works in a typical acquihire:

The startup raised $10 million. Gets “acquired” for $15 million. Sounds like a win.

The liquidation waterfall:

Venture capitalists get their liquidation preference first: $10 million.

Legal fees and transaction costs: $2 million.

Retention bonuses for engineers: $2.5 million.

Founder compensation: $500,000 vesting over 3 years.

Early employees who built everything: $0.

The $15 million exit becomes:

Investors made whole.

Lawyers paid.

The acquirer got talent locked for 4 years.

The founder got $500K spread over 3 years.

Employees got nothing.

In a real exit, liquidation preferences get worse with multiple rounds.

Series A investors: 1 times preference on $5 million.

Series B investors: 1.5 times preference on $15 million.

Series C investors: 2 times participating preferred on $40 million.

The company sells for $100 million.

Series C gets $80 million for their preference. Plus 30% of the remaining $20 million. Total: $86 million.

Series B wants $22.5 million. But only $14 million remains after Series C.

Series A gets $0.

Founders get $0.

Employees get $0.

The company sold for $100 million.

Late investors took it all.

That’s liquidation preferences.

The structure venture capitalists use to ensure they extract regardless of the outcome.

Build a $50 million company?

Liquidation preferences eat it.

Build a $100 million company?

Liquidation preferences eat it.

Build a $500 million company?

Finally, maybe founders see something.

But most companies never reach $500 million.

So most founders never see anything.

The preference isn’t protection.

It’s extraction by design.

Real-world example: Brex.

On January 22, 2026, Capital One announced the acquisition of Brex for $5.15 billion.

Brex was last valued at $12.3 billion in 2022.

58% down round.

$7.15 billion vanished.

But the real damage happens in distribution.

Brex raised hundreds of millions across multiple rounds.

Late-stage investors who invested at the peak $12.3 billion valuation have senior liquidation preferences.

The waterfall likely looks like:

Series D/E investors: 1 to 2 times preference on $300+ million.

Series C investors: 1 times preference on prior rounds.

Series A/B investors: 1 times preference on early rounds.

Total preferences could easily exceed $3 to 4 billion.

Leaving $1 to 2 billion for common stockholders.

Founders and employees hold common stock.

After 8 years building a company “worth” $12.3 billion that sold for $5.15 billion, the founders might walk away with a fraction of what they expected.

Or nothing at all.

Meanwhile:

Pedro Franceschi, co-founder and CEO, gets to keep working... for Capital One now.

Venture capitalists get their preferences paid.

Capital One gets the business.

Build a $12 billion company. Sell for $5 billion. Watch preferences eat everything.

The founders who built it get whatever’s left after investors take their cut.

That’s liquidation preferences in the real world.

Not hypothetical.

Happening right now.

But wait...

Won’t founder Pedro be fine?

Probably better than employees, yes.

Here’s the extraction hierarchy:

Capital One negotiates a management retention pool.

Pedro gets carved out before liquidation preferences hit.

Part of his payout comes as a retention bonus, not equity distribution.

He likely sold shares during secondary markets at peak valuation.

Translation: Pedro probably walks away with low 8-figures plus a retention package.

Not zero.

But nowhere near “co-founder of $12 billion company” money.

Who gets destroyed:

Early employees with common stock options: $0.

Mid-stage employees who joined at $5 to 8 billion valuation: $0.

Late employees who joined at $12.3 billion valuation: negative. Underwater options.

Engineers who turned down Google... $300K salary plus $500K stock.

For Brex... $180K plus equity “worth millions”.

Just lost everything.

The real extraction:

Pedro built an independent fintech company.

Raised billions.

Hired hundreds.

Served thousands of customers.

Now he’s a Capital One employee for the next 3 to 5 years.

Can’t leave. Retention package clawback.

Can’t compete. Non-compete clause.

Can’t build independently. Golden handcuffs locked.

He traded “founder of Brex” for “division president at Capital One.”

The money he gets is real. The freedom he loses is worth more.

The pyramid:

Top: Late-stage investors. Get preferences, exit clean.

Middle: Founder/CEO. Gets some payout, loses independence.

Bottom: Employees. Get nothing, lose jobs, or become Capital One workers.

Liquidation preferences don’t just determine money.

They determine who keeps their freedom.

Investors: always free to move to the next deal.

Founder: locked into the acquirer for years.

Employees: lucky to have a job offer.

Pedro won’t starve.

But he’s not independent anymore.

That’s the extraction that doesn’t show up in the press release.