Liquidity event

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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