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.