(Replying to PARENT post)

Liquidation preference is the number one way that founders end up with nothing. Works like this: VC invests $1m with a, say, 5x liquidation preference then if they company sells for, say $6m the VC gets the first $5m and the remaining $1m is split according to equity. http://www.gabrielweinberg.com/ has some really, really good articles on this kind of thing.
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(Replying to PARENT post)

But if the company sold for less than $5m, the founders would get nothing?

Probably ignorance here, but if the company sold for less, say $4m are the founders now in debt for the remainder of the 5x agreement?

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(Replying to PARENT post)

Simply put, funding rounds are often a stack. Each round of new money typically moves existing investors to a lower priority.

Founders are first in.

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