Liquidity Event
A liquidity event is the mechanism by which private company equity becomes cash—typically via acquisition, IPO, secondary sale, or recapitalization. Allocators evaluate liquidity pathways because venture returns are realized through timing, buyer depth, and distribution execution—not paper marks.
In venture, performance becomes real only when liquidity occurs and cash is distributed. Liquidity events are shaped by market regimes, strategic buyer behavior, regulatory environments, and sponsor control.
From an allocator perspective, the key question is not “Will this be valuable?” but “How will this become liquid, at what valuation, and on what timeline?”
How allocators define liquidity pathway quality
They assess:
- Exit path: strategic M&A, IPO, secondaries, recap
- Buyer depth: realistic acquirer universe and willingness to pay
- Timing: market window risk and duration sensitivity
- Control: who decides (board, founders, lead investors)
- Distribution mechanics: how proceeds flow and when
- Partial liquidity: secondaries and structured outcomes
Allocator framing:
“Are we underwriting a credible exit pathway, or just a story of future value?”
What slows decisions
- managers presenting exits as inevitable without buyer logic
- lack of clarity on control rights and exit decision-makers
- heavy dependence on IPO markets
- limited transparency on secondary opportunities
Common misconceptions
- “IPO is the best outcome” → IPO can be illiquid and volatile; M&A can be superior.
- “Secondaries are always negative” → secondaries can reduce risk and return capital efficiently.
Key allocator questions
- What is the credible acquirer universe and why would they buy?
- Who controls the exit decision and what incentives drive them?
- How does exit timing change under tighter liquidity regimes?
- What is the distribution policy and expected DPI timing?
- How do you treat secondaries and partial liquidity?
Key Takeaways
- Venture outcomes are defined by liquidity, not paper marks
- Exit path underwriting must be specific and realistic
- Control rights and buyer depth are decisive variables