VC puts in 1 dollar, you sell at 1.2, VC will take the first dollar and MAY take the next 20 cents. That could mean a liquidity preference of 1.2x. If you sold at 1.4, it COULD mean VC takes 1.2 and you split the next 20cents according to your share split with the VC.

It may be easier to think of a VC as a bank that doesn't ask you to pay back a loan every month BUT if a liquidity event occurs (i.e. someone buys your company), they absolutely want all their money back first (i.e. "senior" in debt to equity holders (you)) before you get to dip your hands in.

In a "liquidity event", and especially in a "down round" where the company is bought at a lower price per share than previous investors paid, those shares are not treated the same. Preferred shares may get something from the new investment round (perhaps less than they invested), while common shares may have their value wiped out to zero.

(Source: I have been a "commoner" in a company that was bought in a down round where my stock was zeroed but the preferred shares were still worth something.)