Let's say the company gets acquired for $20M. Is it still possible for the other 90% to make $0? Or is the preference amount exactly equal to the invested amount?
Yes, it is possible to have 1.25 or 1.5x first money out liquidity preference. I'm not sure how common that is though, but I've seem it multiple times.
Also note, you can end up with negative returns since you may have paid taxes on the options.
Typically preference = invested capital, but there are exceptions where it could be more (usually only if investors were investing in a distressed situation)
