OK so this is a pretty basic question about something I don't understand. If companies are making money, why do they need to keep getting more money from investors? Don't they eventually have to actually make enough profit to pay back the investors? Or is the assumption now that companies don't operate on profit, and are mainly there to either eventually fold up in bankruptcy or serve as winning lottery tickets for the investors when a bigger companies buys them?

I'll start by saying that investors have the advantage in negotiating experience and negotiating skill, so in most cases it is to the company's advantage to simplify the negotiation. Just as complex derivatives disfavor the less sophisticated party to the transaction, so also do complex equity instruments.

Liquidation seniority on preferred stock is fair, but I I've never been persuaded of a good reason for all the other complexities that find their way into term sheets and contracts. On the other hand, I've lost quite a bit of money to those terms, because founders carelessly agreed to them.