A liquidation preference is a clause in a contract that dictates the payout order in case of a corporate liquidation. Typically, the company's investors or preferred stockholders get their money back first, ahead of other kinds of stockholders or debtholders, in the event that the company must be liquidated. Liquidation preferences are frequently used in venture capital contracts, hybrid debt instruments, promissory notes and other structured private capital transactions, to clarify what investors get paid and in which order during a liquidation event, such as the sale of the company."