Liquidity Event

Any event that allows shareholders to convert their equity into cash (IPO, acquisition, etc.).

Definition

A liquidity event is any transaction that allows shareholders to sell their shares for cash. The main types are IPOs, acquisitions, mergers, and tender offers. For most startup employees, a liquidity event is the only way to realize the value of their equity, since private company shares are generally illiquid (cannot be easily sold).

Why it matters

Until a liquidity event, your equity is a paper number. You cannot pay rent with stock options. Understanding the likely path to liquidity (and the timeline) helps you make informed decisions about exercising options, tax planning, and career moves.

Example

An employee has held options for 5 years at a private company. The company IPOs, triggering a liquidity event. After the 6-month lock-up, the employee can finally sell shares and realize the value they have been accumulating.

Related terms

Initial Public Offering (IPO)

When a private company first sells shares to the public on a stock exchange.

Acquisition

When another company purchases your company, providing a potential payout for shareholders.

Tender Offer

A company-organized opportunity for employees to sell some of their vested shares to a buyer.

Secondary Sale

Selling your private company shares to another investor, providing liquidity before an exit.

Lock-Up Period

A period (usually 180 days) after an IPO during which insiders cannot sell their shares.

Direct Listing

Going public by listing existing shares directly on an exchange without raising new capital.

More from Liquidity & Exits

This definition is an educational summary. It is not legal, tax, or investment advice. Specific terms in your equity grant or company documents may differ.