A liquidation preference, expressed as a multiple like 1x or 2x, says that the investor gets that multiple of their money back, before anybody else gets paid, o

A liquidation preference, expressed as a multiple like 1x or 2x, says that the investor gets that multiple of their money back, before anybody else gets paid, on an exit (sale of the company, IPO, etc). Normally the LP is paid separately from the proceeds of common stock, so the investor also gets paid for the common stock, as well as the liquidation preference. So if the company gets sold for a small amount, the founder gets little or nothing but the investors don't lose money. If the company is sold for a large amount, the investors get an extra chunk but the founder still does very well.