Core Viewpoint - The article discusses the "last in, first out" principle in multi-round financing, where later investors typically have a higher priority for repayment compared to earlier investors, based on the increasing valuation of the company with each financing round [3]. Group 1: Basic Principles - The "last in, first out" principle allows later investors to demand higher priority in repayment due to their investment at higher valuations, which compensates for similar risks faced by earlier investors [3]. - In the event of liquidation, later investors, such as those in the C round, have the right to be repaid before earlier investors from the A and B rounds [3]. Group 2: Types of Liquidation Events and Repayment Order - Liquidation events are categorized into statutory liquidation and deemed liquidation, with different repayment orders applicable [4]. - Statutory liquidation includes scenarios like bankruptcy, where repayment follows legal priority, ensuring that liquidation costs and employee wages are paid first, followed by debts, before any distribution to shareholders [4]. - Deemed liquidation events, such as mergers or acquisitions, are critical for investors as they directly affect exit strategies and return expectations, with repayment rights being strictly enforced [5]. Group 3: Specific Clause Designs for Repayment Order - Repayment priority can be structured in two main forms: fixed multiple priority and participation rights clauses [6]. - Fixed multiple priority allows later investors to recover their investment amount plus a premium, ensuring they are prioritized in repayment [7]. - Participation rights clauses enable later investors to participate in the distribution of remaining assets after their priority amount is satisfied, providing a potential for dual returns [8]. Group 4: Exceptions and Special Cases - While "last in, first out" is the general principle, exceptions can occur, such as when earlier investors have shorter buyback periods or when later investors acquire old shares, which may affect their repayment order [9]. - Specific agreements in financing contracts can also alter the repayment order, allowing for equal priority among all investors or specific distribution ratios [9]. Group 5: Legal Framework and Liquidation Procedures - The liquidation process requires adherence to legal procedures for asset management and distribution, ensuring that statutory obligations are met before any shareholder distributions [10]. - If priority repayment clauses are included in financing agreements, they must be considered in the liquidation plan to protect investors' rights [10]. Group 6: Strategies for Later Investors in Liquidation Events - Later investors can pursue legal remedies to assert their rights if they are not repaid due to insufficient assets or flaws in repayment clause designs [13]. - Options include litigation or arbitration to confirm the validity of priority repayment clauses and to challenge any improper actions by the liquidation team or controlling shareholders [14][15]. - Negotiation strategies such as debt restructuring or asset swaps can also be employed to achieve partial repayment [16][17]. Group 7: Preventive Measures for Optimizing Financing Agreement Clauses - Implementing "liquidation threshold" clauses can ensure that later investors receive priority repayment when remaining assets fall below a certain level [20]. - Introducing buyback or redemption rights can provide exit options for later investors outside of liquidation scenarios, reducing reliance on such events [21][22]. - Clearly defining "deemed liquidation events" in agreements can ensure that later investors' repayment rights are triggered appropriately during significant corporate changes [23].