top of page

What are Liquidity Events and Why Do They Matter?

Updated: Jan 17, 2023

This has nothing to do with what goes into a drinking glass. Sure, the juice stain on your pants may be a form of a “liquidity event,” but in the world we operate in, liquidity events are entirely different. A liquidity event in our parlance refers to a process by which an investor or business owner liquidates their investment position in a private company in exchange for a cash payout.

Business equity is considered an illiquid asset, whereas cash is a liquid asset. But these liquid assets are not necessarily cash, they can also be done in the form of traded shares. The liquidity event represents that exchange. This event can be considered the “end game” for business owners. Let’s look at different types of liquidity events and examples of them throughout business history.

A Company Goes Public

When a startup “goes public,” its company shares can then be freely traded on a public stock exchange. While an IPO is the most common form of taking a company public, some companies go public through a direct listing. The most common feature of a direct listing is the fact that outstanding shares are sold but no new shares are created. Direct listings also do not involve the assistance of an underwriter.

Another option is to merge your company with a Special Purpose Acquisition Vehicle – or SPAC. A SPAC is essentially a shell company set up by investors with the singular purpose of raising money through an IPO to acquire another company. SPACs are generally created, or sponsored, by a team of institutional investors.

Performing a Secondary Transaction

A secondary transaction is one where investors may want to sell all or a portion of their ownership stake in a company without said company changing hands. While it may be considered a liquidity event for an investor or owner, it may not represent a true exit for all investors. An example of this could be a situation where a company has three co-founders, and one wants to sell their stake to the other two investors.

Secondary transactions involve something called a “right of first refusal.” Short-handed as ROFR, these give the holder the right of “first dibs” on any potential share sale. This is also known as a last look provision. ROFR clauses are generally negotiable and are unique to every deal they are included in. There are various reasons why they may be used but are a common occurrence in secondary transaction liquidity events.

Going Through an Acquisition

IPOs may get the most attention in the financial world, but acquisitions are still the most common liquidity event for venture capitalists. An acquisition is defined as a corporate transaction where one company purchases a portion or all of another company's shares or assets. Acquisitions are typically made to take control of, and build on, the target company's strengths and capture synergies.

There are a few different acquisition types in business. A normal acquisition is one in which both companies survive, a merger is one in which only one companies survive and an amalgamation is one in which neither company survives and something altogether different arises from combining the two. Acquisition deals are generally smaller than public listings, though there have been some exceptions, such as Facebook’s acquisition of WhatsApp or PayPal’s acquisition of Honey, an online shopping platform.

At Pluribus Technologies, we provide investors and business owners with liquidity events in the form of an acquisition. If a profitable company sits in one of our four targeted verticals – eLearning, eCommerce, Health Technology, and Digital Enablement – we may engage in a conversation regarding the acquisition of said company. The owner or investors are provided with a liquidity event, and we take over management. If you are a tech company owner or investor curious about a liquidity event and feel your company fits the bill, get in touch with us today!

51 views0 comments


bottom of page