Liquidation Preference
The investor's right to be paid back first on an exit, before common shareholders.
A liquidation preference determines who is paid first when a company is sold. A 1x non-participating preference means the investor takes back their investment or converts to common and takes their percentage — whichever is larger, not both.
Participating preferred means both: the investor takes their money back and then shares in the remainder. On a modest exit this can leave founders with far less than their percentage suggests.
1x non-participating is the founder-friendly standard. Multiples above 1x, or participation, indicate an investor pricing in real risk, and materially change the outcome of any exit short of a large one.