Liquidation preferences have value, and a lot of value, I'm saying that they just don't make VCs immune from bad consequences. I'm sure the reason they are so

Liquidation preferences have value, and a lot of value, I'm saying that they just don't make VCs immune from bad consequences. I'm sure the reason they are so common is that a VC wants it, and it seems fair to the founder and is easy to toss in. Founders certainly don't accept anything the VCs dictate, and terms like this are on the table during negotiations. This is especially why as an founder you want competition from multiple VCs so you a little bit of leverage. But at the end of the day the VCs are going to want some sort of preferences over the common stock, and this is a fairly easy one to toss in. As to why the preference might not be so great for a VC, let's imagine a hypothetical scenario. I make a 20k personal angel investment in a company with a 1x liquidation preference. A year later the company is tanking and sells for less than the valuation, but enough that I get all my money back. Great. I lost the opportunity cost of that 20k for one year, but nothing else. But imagine the same scenario with a VC, but let's say it was 20 million of their 100 million dollar fund. A year after they make the investment, they get the money back. But they now must return that to the LPs. The fact they got the money back quickly makes no difference to them, because they can't re-invest it. And now they now have only 80% of their fund left to try and generate a big return. Yes, getting the money back is better than not getting it back, but is wasted ammo they cannot re-use in their quest to generate a big return. And also lost in this is that many times when a company is tanking they will either go completely bankrupt or not return all the money that investors put in (see: Fab).