Liquidation preference can also be participating or non-participating. A non-participating liquidation preference means the investor gets the greater of the underlying liquidation preference or the value of such investor’s pro rata ownership of the company. A participating liquidation preference means the investor gets the liquidation preference and the value of its pro rata ownership of the company, if any, after its liquidation preference is paid.
For example, assume a company was worth 100M and owns 20% of the shares. At sale, the investor would first receive 900M. Then, they would receive 20% of the 280M total, or 28%, of the total equity value. https://a16z.com/2022/09/22/funding-when-capital-isnt-cheap/