Rather limited exposure to the world of VC, so forgive the elementary question. When a VC investor goes into a, say, Series A round, he gets preferred shares. Let's say he gets a 1x liquidation preference, and no participation rights.
Where does his return come from? 1x basically means he gets his money back. And because there are no participation rights, he doesn't get the 1x and then the opportunity to participate as a common shareholder, right? In actuality, do preferred investors typically get participation rights? Or do preferred investors usually have the right to convert their shares to common once the return to common > their cost/share?
Insight here would be appreciated.