In the rogue’s gallery of investor protective provisions that come out of their cave in bad times, the multiple X preference is among the first. A preference is a provision that gives an investor a return in the event of a sale of the business before any money goes to the common stockholders. So, in a typical (and very commonly seen in good times as well as bad) 1X participating preferred, the investors get a payment in an amount equal to their investment plus accrued and unpaid dividends before the common get anything. After receiving this payment, the investors participate with the common on an as converted basis. My article on antidiluton, has a detailed description of the effect of this provision. However, just imagine the effect on the common stockholders of a 3X or, God forbid, a 5X preference. After the dotcom bust, these things appeared like mushrooms after rain. Try to resist these things. Having said that, it may be the only way to get financed, so be realistic. It may be possible to negotiate capped preferences in which the investor gets his or her preference but only up to some limit. In any event, do the math at various exit values. It could turn out that a multiple X preference makes working for someone else rather than starting a venture financed business look good.