DEFINITION of 'Liquidity Path'

The path taken by a company to provide liquidity for company founders or owners. The most common liquidity paths are through mergers and acquisitions to a larger company, and through initial pubic offerings (IPOs) of stock to investors.

Without a path to liquidity, private company owners may not be able to convert their ownership in the company to any other means of currency or investment.

BREAKING DOWN 'Liquidity Path'

Most private companies of a sufficient size are constantly evaluating different liquidity paths. Some owners may simply be looking for a way to "cash out", or looking to the liquidity achieved in an IPO to help fund future business growth and expansion efforts.

The state of the overall economy and the stock markets may affect the timing and direction of a liquidity path. If the stock market is currently weak, investors may have little or no appetite for IPOs, making that option less favorable because the company would likely not receive a fair price for its shares. The company could choose to wait out the markets, or change course and sell to another company or private equity investor directly.

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