A liquidity event is a process by which an investor liquidates their investment position in a private company and exchanges it for cash. A liquidity event's primary purpose is to transfer an illiquid asset (an investment in a private company) into the most liquid asset – cash. A liquidity event can be triggered by loss prevention, legal reasons, market changes, or successfully reaching profit targets.
There are two types of liquidation events: Initial Public Offerings and Direct Acquisition. After an IPO, the company's shares become publicly traded; the company's founders and investors may also sell their shares to monetize their initial investments. In the case of Direct Acquisition, the company or a stake in the company is sold directly to an interested party. This is another method of monetizing an initial investment.