Liquidity event
Startups - shares - share options - shareholders' agreements.
In the context of a new company, owned privately by a relatively small group of shareholders, liquidity events arise on corporate actions such as an initial public offering, or a trade sale, acquisition or merger.
On a liquidity event, the early investors - including founders - generally have an opportunity to liquidate, or exit, their investments in whole or in part.
The early investors' previously illiquid, non-transferable, shares can be sold to new investors.
From the perspective of the early investor, their illiquid investment in shares in a private company - usually subject to a shareholders' agreement restricting transferability of the shares - becomes a more liquid investment that they can potentially sell for cash.
Some executive share options in startup companies may be specified as being exercisable only on the occurrence of such a liquidity event.
See also
- Acquisition
- Business angel
- Corporate action
- Crowdfunding
- Entrepreneur
- Equity
- Exercise
- Exit
- Illiquid
- Initial public offering (IPO)
- Liquid
- Liquidate
- Liquidity
- Merger
- Option
- Private company
- Private equity
- Seed
- Series A
- Series B
- Share
- Shareholder
- Shareholders' agreement
- Startup
- Trade sale
- Venture capital
