Operations that provide the liquidation preference give access to an investment formula that is intended to lead at least to recover the capital invested and to generate at least the ROI expected according to the Business Plan, except in cases of default of the operation.

Consequently, an investor holding "Wall" shares, is entitled to obtain in the following order of priority: 1) repayment of the invested capital and 2) payment of the generated profit in priority to holders of shares of another category (e.g. Ordinary Shares belonging to founder members).

Liquidation preference is not applied to all projects, and can involve different cases. You can check the specific conditions within the following documents relating to the specific operation: Business Plan, Conditions of Offer, and Co-Investment Agreement.

A case study

Let’s assume an operation with the following characteristics:

  • estimated total length: 24 months;

  • estimated gross annual ROI: 12%;

  • estimated gross profit: € 400,000, out of which € 100,000 will go to “Wall” shareholders.

The operation ends after 24 months, generating a profit of only € 110,000 (€ 290,000 less than expected). In this case, holders of Wall shares are entitled to receive, after repayment of the capital - and depending on whether they have the necessary liquidity - a return corresponding to the € 100,000 initially estimated. Holders of other types of shares (e.g. founder members) will be paid, pro rata, the additional capital, which corresponds to the remaining € 10,000 profit.

The following cases are added to this initial hypothesis:

Case A.

The project ends under the same conditions as above, but with a one-month delay, reaching a total length of 25 months.

If the above-mentioned documents specify that the Offeror is obliged to pay an amount as interest payment up to a minimum amount equal to the "gross annualized ROI", the following situation would arise.

After repayment of the capital and up to capacity, i.e. if liquidity is available, the Offeror company will repay to Wall shareholders a total of € 104,000 of profit, due to the one-month delay, and no longer only €100,000.

Case B.

The operation ends after 25 months. If the above documents specify that the Offeror is required to pay an amount by way of interest up to a minimum amount equal to "total gross ROI", the following situation would arise.

After repayment of the capital and up to capacity, i.e. if liquidity is available, the Offeror company will repay the Wall shareholders a total of €100,000 by way of profit. Therefore, in this case, the one-month of delay does not affect the total profit distributed.


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