Liquidity Event

  

Categories: Trading, IPO

Like an IPO. It's when you get cash for selling something...not-cash-y.

Sell your home for cash? Liquidity event. Sell your piano for cash? Liquidity event. Barter your John McEnroe classic tennis racket for a set of Jack Nicklaus wedges? Not a liquidity event, because you didn't get cash.

Related or Semi-related Video

Finance: What is liquidity preference?27 Views

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finance a la shmoop. what is liquidity preference?

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yeah well liquidity is a good thing you want it. being liquid means that you have

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cash which gives you options to you know buy stuff. and yeah even the Amazon River [money leaves a wallet in the grocery store]

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shops at Amazon. all right so if your flavor of

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investment has a liquidity preference over someone else's then your investment

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all else being equal is preferable. see the liquidity preference . specifically if

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you have liquidity preference and usually this is found in the form of

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early stage of venture capital investor term sheets for investing in companies

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in the form of convertible preferred stock- like it converts into common at

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the IPO or something like that- then you get paid before everyone else

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gets paid -at least in this form of stock- if the company gets sold.

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all right well technically that is, but the company is sold and your convertible

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preferred hasn't converted into common shares yet this company didn't go public. [convertible stock made into common stock]

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but so like let's think about the example where if the company raised

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twelve million bucks in preferred stock, which all had a liquidity preference

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over and above common ,and then the whole company was sold for just fifteen

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million dollars. well then those with liquidity preference would get liquid

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first .ie they get their twelve million bucks. then the remaining three million

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would be sprinkled around everyone else who was do the dough. plus any dividends

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or accrued assets that have come our way otherwise. and yes technically debt

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holders get paid ahead of the various series preferred investors who then get [list of who gets paid first]

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paid ahead of the common shareholder but that's a different video. all right so

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when it comes down to it you want to have liquidity preference. clearly I

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prefer to be liquid myself. [man floats in lake in an inner tube]

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