Well, selling the company for the post-money valuation will give the investors their $X back. The thing that the liquidation preference works is preventing cert

Well, selling the company for the post-money valuation will give the investors their $X back. The thing that the liquidation preference works is preventing certain types of control fraud. For example, if the founders take $1M in funding on a $2M post-money valuation, then end up losing $1M to excessive payroll costs to insiders and sell the remnants of the company for the pre-money valuation, the investors are out half their money without a liquidation preference. In short, the liquidation preference means that any losses come out of founder equity first, rather than the new cash infused in the business. This is important because the founders control the company and can choose to take courses of action that impoverish the company at their personal benefit.