I am mostly imagining the "happy middle" scenario where you raise $1m and sell for $10m in cash, but modified to assume you raised $10m and spent $2m of it, and

I am mostly imagining the "happy middle" scenario where you raise $1m and sell for $10m in cash, but modified to assume you raised $10m and spent $2m of it, and then got the $10m in cash from the acquirer, and still have $8m in the bank account, you would give back $10m to your investors per the liquidation preferences and then split the remaining $8m. You are in a worse boat than if you had only raised the $1m and then sold for $10m, but the founders probably still walk away with ~5-7m pre-tax (depending on how much equity the $10m cost you over 1-2 rounds), and you're in a better position than if you had run through the $1m and hadn't quite gotten to a thing worth $10m.