CandleFocus Glossary Editor
A liquidity event is the conversion of illiquid assets into liquid cash. It is an event that allows company investors to realize a return on their investment in a company. This is especially beneficial to shareholders who have invested in a private company and have limited or no access to the stock market.
Common liquidity events are an Initial Public Offering (IPO), acquisition by another company, or through the sale of a private investment to an institutional investor. The process of a liquidity event is typically lengthy and complex, which is why many investors opt to work with an experienced liquidity event advisor to guide them through the process and maximize outcomes.
At its core, an Initial Public Offering (IPO) is one of the most common liquidity events. A company going public will usually offer investors a share of the company in exchange for their investment. With an IPO, the company announces its intention to offer new stock publicly and hence, goes from a private to a public company. The newly issued shares are sold to the public and investors can then buy and sell them on the stock exchange.
An acquisition of a company by another company can also be a form of liquidity event. This occurs when a larger company purchases the assets and stock of a smaller, privately held company. The acquisition of another company is usually a more strategic way of gaining access to new technologies, markets, or resources.
The sale of a private investment to an institutional investor is another form of liquidity event and has grown in popularity in recent years. In this transaction, a company’s shares are sold to a large institutional investor such as a mutual fund or pension fund. This type of transaction is attractive to institutional investors who are looking to diversify their portfolio and gain access to early-stage or pre-IPO companies.
It is important to note that while many investors favor liquidity events, founders may not be so eager, as the event may mean them losing control of their company or having their holdings substantially diluted. For founders, it may be beneficial to seek an experienced liquidity event advisor to help them assess the pros and cons of any potential liquidity event. With the help of an advisor, a founder can work to maximize the liquidation of their stake, protect their intellectual property, and maximize the payoff for their shareholders.
In short, a liquidity event is when a company is converted from a non-liquid asset (private company) to a liquid asset (publicly traded stock). It allows early investors to convert illiquid equity into cash in exchange for issuing new shares to the public or by an acquisition of the company. Though numerous organisations look to liquidity events to cash in on their investments – founders may be less enthralled by the idea – as it means having to relinquish some control over their company. Despite the potential hesitations surrounding these processes, having an experienced liquidity event advisor can help founders manage these types of events.
Common liquidity events are an Initial Public Offering (IPO), acquisition by another company, or through the sale of a private investment to an institutional investor. The process of a liquidity event is typically lengthy and complex, which is why many investors opt to work with an experienced liquidity event advisor to guide them through the process and maximize outcomes.
At its core, an Initial Public Offering (IPO) is one of the most common liquidity events. A company going public will usually offer investors a share of the company in exchange for their investment. With an IPO, the company announces its intention to offer new stock publicly and hence, goes from a private to a public company. The newly issued shares are sold to the public and investors can then buy and sell them on the stock exchange.
An acquisition of a company by another company can also be a form of liquidity event. This occurs when a larger company purchases the assets and stock of a smaller, privately held company. The acquisition of another company is usually a more strategic way of gaining access to new technologies, markets, or resources.
The sale of a private investment to an institutional investor is another form of liquidity event and has grown in popularity in recent years. In this transaction, a company’s shares are sold to a large institutional investor such as a mutual fund or pension fund. This type of transaction is attractive to institutional investors who are looking to diversify their portfolio and gain access to early-stage or pre-IPO companies.
It is important to note that while many investors favor liquidity events, founders may not be so eager, as the event may mean them losing control of their company or having their holdings substantially diluted. For founders, it may be beneficial to seek an experienced liquidity event advisor to help them assess the pros and cons of any potential liquidity event. With the help of an advisor, a founder can work to maximize the liquidation of their stake, protect their intellectual property, and maximize the payoff for their shareholders.
In short, a liquidity event is when a company is converted from a non-liquid asset (private company) to a liquid asset (publicly traded stock). It allows early investors to convert illiquid equity into cash in exchange for issuing new shares to the public or by an acquisition of the company. Though numerous organisations look to liquidity events to cash in on their investments – founders may be less enthralled by the idea – as it means having to relinquish some control over their company. Despite the potential hesitations surrounding these processes, having an experienced liquidity event advisor can help founders manage these types of events.