Liquidity Preferences are not Liquidation Preferences

Back in the summer of 2009 we were out trying to raise venture capital for Pardot (we didn’t end up raising any money). During the fundraising process we pitched over 30 different VCs including several famous ones. At one point we were out on Sand Hill Road meeting with a well-known venture capitalist and yesterday’s topic of liquidity preferences came up.

Mid-way through the conversation he stopped us and said, “You know guys, it’s a liquidity preference and not a liquidation preference. I have another entrepreneur in our portfolio who constantly refers to it as a liquidation preference. Liquidations are bad. Liquidations are when the company goes out of business and all the assets are sold. Liquidity preferences come into play when the company is bought, and it’s usually in a positive context.”

From that day forward, whenever someone mentions a liquidity preference, I always think of the VC and his comments that a liquidity preference is not a liquidation preference.

What else? Have you heard someone confuse the term liquidity with liquidation?

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