Deep inside a Silicon Valley unicorn lurks a time bomb.

It is a peculiarity of venture capital financing that the engine that pumps money into a promising start-up can later cause the same start-up to self-destruct. With all the hoopla and debate over sky-high valuations of technology start-ups, it is worth keeping in mind that the switch that helps to drive those surging valuations can also be turned off.

The “bomb,” so to speak, is known as a liquidation preference. In every financing round, the money that a venture capital firm invests is not given freely. The firm and the start-up will negotiate terms of protection.

Negotiable terms include voting rights, seats on the start-up’s board and assurances that a future fund-raising won’t unduly dilute the venture capital firms’ stake.

The liquidation preference is among the most important of these protections.

This feature provides that the venture capital firm’s investment will be repaid before the founders and employees are rewarded. If the firm has particular leverage, it can negotiate an even more protective form, known as the senior liquidation preference, which provides that the firm will be paid not only before the common stockholders but also before anyone else who bought preferred stock in earlier rounds.