Exits & Liquidity
Liquidity Event
Any transaction that allows shareholders — founders, employees, and investors — to convert equity in a private company into cash.
Liquidity events include IPOs, acquisitions, secondary transactions, and tender offers. For most startup stakeholders, the liquidity event is the moment when years of equity compensation translate into actual money.
Many employees hold significant paper equity for years without a liquidity event. Secondary markets (like Carta, Forge, and EquityZen) have emerged to allow employees and early investors to sell shares before a formal liquidity event, though often at discounts to the most recent round price.
In Practice
When Figma was acquired by Adobe for $20B (later blocked by regulators), it was a liquidity event for Figma's employees, founders, and investors. Dylan Field's equity would have been worth billions. Early employees who had held vested shares for years would have received life-changing amounts.
Why It Matters
Understanding what constitutes a liquidity event — and what the payout waterfall looks like — is critical for founders negotiating with investors and employees evaluating equity grants. The liquidation preference stack can mean common shareholders get nothing even in a positive exit.