A liquidity event is when a private company creates a way for its owners and investors to turn their shares into cash. It is how early backers, founders, and sometimes employees finally get paid after years of building or supporting a business. It takes time, but it’s worth it (more on that here).

If you have ever heard stories of someone investing early in a startup and then making millions later, it happened because of a liquidity event.

Why It Matters

Private companies do not trade on the stock market. Shares in these companies cannot be sold easily at any time. Investors wait years hoping the business grows and eventually reaches a point where their shares can be turned into money.

A liquidity event is the point when that happens. It is the finish line for the investment.

Types of Liquidity Events

There are a few main ways this happens. Each looks different but the goal is the same: cashing out ownership.

Acquisition

This is when another company buys the entire business. The buyer pays in cash, stock, or a mix. The money goes to the current owners based on how many shares they have. This is the most common outcome for startups.

IPO (Initial Public Offering)

This is when a private company becomes public and starts trading on the stock market. Shares can then be sold on public exchanges like the New York Stock Exchange or Nasdaq. Investors usually have to wait a few months before they are allowed to sell after an IPO.

Secondary Sale

Sometimes investors or founders sell their shares to another private buyer before the company is bought or goes public. This is called a secondary sale. It provides liquidity earlier but usually at different terms.

How Long Does It Take?

Liquidity events do not happen quickly. In private markets, it often takes seven to ten years. Some companies never reach this point at all. That is why investing in private businesses requires patience and a long view. Is it a gamble? In ways, which is why you want to learn what to look for.

The Bottom Line

A liquidity event is simply how private company owners and investors finally turn their shares into cash. It is why people invest in startups or growing businesses in the first place. Knowing what it means helps you understand the real payoff timeline and why most investors are in it for the long haul.