What is a Liquidity Event?
A liquidity event is how an equity investor exits from its ownership position in a company and realizes its return on investment. We exit investments through traditional vehicles such as an initial public offering or an acquisition of the company. Other forms of exit include formation of an Employee Stock Ownership Plan or through a management buy-back of our stock.
A liquidity event is a term used in corporate finance to describe many different events. The two primary events that fall under the liquidity event umbrella are the purchase of a corporation and an initial public offering. An initial public offering is the first sale of the common shares of a corporation to public investors. Any subsequent public issuances of shares is called a secondary market offering. An initial public offering is intended to help raise capital necessary to fund the corporation. It is an effective means for raising capital, but requires adhering to strict legal regulations and fulfilling extensive amounts of reporting requirements. In general, a liquidity event is the exit strategy used by a startup company. This is because a liquidity event often results in the conversion of ownership equity previously held by the founders of the company. By means of a liquidity event, the initial investors and owners of the company are able to change their business equity into cas
