Are "liquidation preference" shares just tagged as being worth more than their actual value though? I can't reconcile how they could get paid "according to the number of shares and the valuation of those shares" and have there be nothing left over for the non-preferred stock. If the founders/VCs have any n% of a, say, $10M acquisition, that still has to leave money for everyone else, unless the total number of shares is >100%, someone has a funny idea of a $10M company being worth more than the $10M that was paid for it, or there is something else going on.

My understanding is that you're perfectly correct, however — I'm just trying to demonstrate how I don't really "get" it. I presume there's some other number involved in the "liquidation preference" that is visible to those involved that make it more than a mere n% of company calculation.

Edit: Googling this, it seems like these special investors get to recoup their investment if the company is selling for less than what they valued it at at their time of investment. (And since it seems like this generally applies to VC firms, I gotta say, this is really lame. It was a bad investment, but you know the actual employees took a lot more risk in it, and yet the VCs get a better return — albeit a loss.)