Liquidity Event


DEFINITION of 'Liquidity Event'

An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an exit strategy for an illiquid investment. Liquidity events are typically used in conjunction with venture capital/angel investors or private equity firms, which will aim to reach one within a reasonable amount of time after initially making an investment.

The most common liquidity events are initial public offerings (IPOs) and direct acquisitions by other corporations or private equity firms.

BREAKING DOWN 'Liquidity Event'

The most valuable asset in the world loses much of its luster if you can't sell it. As a result, liquidity events are always being considered when an investor or group holds illiquid equity in a company.

Many venture capital and private equity firms have established time periods after which they need to find some way to achieve liquidity, if for no other reason than to achieve and measure an internal rate of return for the investment.

  1. Liquidity

    The degree to which an asset or security can be quickly bought ...
  2. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  3. Private Equity

    Private Equity is equity capital that is not quoted on a public ...
  4. Liquidity Risk

    The risk stemming from the lack of marketability of an investment ...
  5. Angel Investor

    An investor who provides financial backing for small startups ...
  6. Rule Of 72

    A shortcut to estimate the number of years required to double ...
Related Articles
  1. Mutual Funds & ETFs

    Private Equity A Trendsetter For Stocks

    In this article, we'll show you how private equity sets the trend for stocks everywhere.
  2. Mutual Funds & ETFs

    How To Invest In Private Equity

    Private Equity might be a pricey investment, but returns are on the rise and the payoff could be big.
  3. Retirement

    IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  4. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  5. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  6. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  7. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  8. Investing Basics

    5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  9. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  10. Markets

    The Biggest Private Equity Firms In India

    Learn about the leading private equity firms operating in India and which companies and industries are attracting foreign investment dollars.
  1. How does an IPO get valued? What are some good methods for analyzing IPOs?

    The price of a financial asset traded on the market is set by the forces of supply and demand. Newly issued stocks are no ... Read Full Answer >>
  2. When did Facebook go public?

    Facebook, Inc. (NASDAQ: FB) went public with its initial public offering (IPO) on May 18, 2012. With a peak market capitalization ... Read Full Answer >>
  3. Do hedge funds invest in private companies?

    Hedge funds normally do not invest in private companies because of liquidity concerns. Capital funding for private companies ... Read Full Answer >>
  4. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  5. Can mutual funds invest in private equity?

    Mutual funds can invest in private equity indirectly by buying shares of publicly listed private equity companies, such as ... Read Full Answer >>
  6. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center