A liquidity event is a financial milestone that allows investors to convert their equity into cash. Common examples include mergers and acquisitions (M&A) or an initial public offering (IPO), where shares become publicly tradable, giving investors a chance to “cash out.”
Why is a liquidity event important for investors?
Liquidity events provide investors with the opportunity to realize returns on their investments. Since early-stage investments are often illiquid, a liquidity event is essential for turning their equity stake into cash.
What types of liquidity events exist?
The two main types of liquidity events are IPOs, where shares are listed on a public exchange, and M&As, where the company is acquired by another firm. These events are generally seen as “exit opportunities” for investors.
How does a liquidity event impact a startup’s founders?
Founders may benefit financially, but a liquidity event often shifts ownership and may impact the startup's direction. It’s an important milestone that signals growth and maturity.
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