The guaranteed return is in the interest rate that their security undoubtedly had...prob around 12% to 15%. In the event of a sale, the liquidation preference creates a scenario where the equity is being treated like debt - their money comes out first, and does so with an increased return. If they invested $100 with a 12% paid in kind interest, after 1 year, that's $112, and with a 3x liquidation preference, that's a $336 return for a $100 investment. If the sale of the company was under $336, the VC gets a guaranteed return, and all of the capital. It gets even worse over time. With a seven year horizon and the same return and liq pref, the sale price would have to be greater than $663 for the preferences to not come into the decision tree.

People cry foul over the payday loan places, but no one is crying foul over a 3x liq pref. 1x is palatable, but 3x (or even 3.5x) is crazy.