A liquidation preference is the preferred-stock right to get paid back before common shareholders in a liquidity event such as a sale, merger, or wind-down. It defines who gets what, in what order, when the company is sold or shut down.
The market standard in a healthy venture deal is a 1x non-participating preference: each investor gets back the greater of their original investment or their pro-rata share of the proceeds as if their preferred had converted to common, but not both. Variations get more aggressive. A participating preference lets the investor take their money back first and then also share in the remaining proceeds with common, often called "double dipping." A multiple preference (2x, 3x) returns that m...