A company's "Capital Stack" is the legal rights that others have to your business assets in a downside scenario. It prioritizes who gets paid first and who gets paid last (if at all). Debt always sits in front of equity (VCs) repayment. While a company may not have every element, we put together a simple visual representation of the different layers to the Capital Stack when I was building INTRO.me.

As the graphic shows, the company must pay taxes and employee wages before anything else. The next layer, well, can be a bit more complicated. Debt terms, rights, and covenants can quickly become pretty complex, depending on the company and the debt instruments they have in place.

Anything, ANYTHING that sits between preferred shareholders and their return can cause natural heartburn for VCs. Depending on the outcome at liquidation (read: bankruptcy, acquisition, or IPO), minus the amount of taxes, employee wages, and debt that the company must pay, this could mean the difference between seeing any return at all or a total loss for the investors. But, before we shed too many tears for our friendly neighborhood VCs, this is part of the risk they get paid to take on being an equity financier vs. a debt provider. Just because that's their business model doesn't mean it has to be yours, dear reader!