Liquidation Preference

A right letting preferred investors get paid back before common shareholders when a company is sold or wound down.

A liquidation preference guarantees that, in a sale, merger, or bankruptcy, holders of preferred stock, typically venture investors, recoup their investment or a multiple of it before any proceeds go to common shareholders, including founders and employees. It protects investors' downside but can leave little value left over if the exit price is low.

Because of the fund's 2x liquidation preference, it would be paid back double its investment before founders saw a cent.