Liquidity Event

A moment when ownership can turn into cash, such as an acquisition or IPO. Secondary sales can also create limited liquidity for some shareholders.

Why it matters

Until a liquidity event happens, equity is just a number on paper. Understanding the types of liquidity events helps you plan for when and how your ownership might actually turn into cash. It also affects decisions about exercising options and tax planning.

How it works

The most common liquidity events are acquisitions (another company buys yours), IPOs (your company goes public on a stock exchange), and secondary sales (selling shares to another private buyer before an exit). In an acquisition, proceeds are distributed according to the cap table's liquidation waterfall, with preferred shareholders getting paid first. In an IPO, shares become tradeable on a public market, though there's usually a lock-up period of 90-180 days before insiders can sell. Secondary markets have grown significantly, giving employees and early investors options before a traditional exit.

Learn more

• Secondary Markets for Startup Equity

Related terms

• Liquidation Preference
• Cap Table
• Stock Options
• Exercise