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Definition

liquidity event

A liquidity event is a corporate activity in which illiquid assets such as shares are made liquid and distributed to business owners and investors.

The liquid assets of a business include not only cash on hand but also any assets that can readily be converted to cash, such as accounts receivable amounts. Liquidity events are considered exit strategies in which owners and investors terminate some endeavor to cash in shares and other illiquid investments. Common examples of liquidity events include IPOs (initial public offerings) and acquisition of a business by another corporation or a private equity firm.

There is always risk involved with holding illiquid equity in a company. Venture capital (VC) firms and other investors often establish timelines for achieving liquidity, which is typically their end goal for funding a startup. Funds invested in such speculative ventures are sometimes referred to as risk capital.

Liquidity event is not synonymous with liquidation, which is the discontinuation of business for a company and involves redistribution of corporate assets.

This was last updated in April 2016

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