It depends. With a liquidation preference, your investors get their money out x their liquidation preference multiple before anyone else gets proceeds. Then (much of the time) they share in the remainder of the proceeds.
So, for example, if an investor invests $5M in your company with a 1x participating liquidation preference, and a $25M post money valuation, they own 20% of the company on a fully diluted basis.
Now, if your company sells for $10M, the proceeds split is as follows:
$5M to the investor to satisfy the liquidation preference +
20% of the remaining proceeds because they had participating preferred, in this case, that would be $1M.
So, the total proceeds would be $6M to the investor.
Now, that doesn't leave a whole lot for the employees, as others have said, a lot of the time the acquirer will offer retention packages. Also, sometimes, employees have voting power (in this case, they likely would), and so, can negotiate a carve out off the top. In this case, if the employees had a 20% carve out,the proceeds would look like this:
$2M off the top for the employees
$5M for the preference to the investor
20% of the remaining $3M to the investor, or $600k to the investor.
$2.4M to the holders of the common stock.