If you work at a private company, chances are some of your compensation comes in the form of equity – stock options, RSAs, RSUs, or other ownership. It’s exciting to think about, but until you can actually sell those shares, the value is locked up on paper. That’s where liquidity comes in.
Liquidity is simply the ability to turn your shares into cash. For employees and shareholders, the type of liquidity event makes all the difference in how, when, and how much wealth you can access.
Let’s look at the major liquidity events and what they mean for you.
1. The IPO (Initial Public Offering)
An IPO happens when a private company lists its shares on a public stock exchange. For employees and shareholders, this is usually the most high-profile liquidity event.
What it means for you:
- Access to the public market: Once the lock-up period (typically 90–180 days) ends, you can sell your shares like any other stock.
- Potential for major upside: If the company’s stock performs well, your equity could be worth significantly more than its private valuation.
- Market risk: Share prices can fluctuate quickly. Selling all at once might lock in gains, but spreading sales out over time can help reduce risk.
2. An Acquisition or Merger
When another company buys your employer, your equity may be converted into cash, stock in the acquiring company, or both.
What it means for you:
- Cash payout: Some acquisitions deliver immediate liquidity in the form of a lump-sum cash payment.
- Stock swap: You may receive shares in the acquiring company, which could provide long-term upside but less immediate liquidity.
- Impact of terms: The acquisition agreement spells out how vested and unvested shares are treated. In some cases, unvested shares accelerate (vest immediately), while in others, they may be canceled.
3. Secondary Transactions (Like Tender Offers)
In a secondary transaction, existing shareholders (like employees, founders, or early investors) sell their shares to new investors or back to the company itself.
What it means for you:
- Partial liquidity: Employees often get the chance to sell a percentage of their vested shares while holding the rest for future growth.
- Company control: Secondary sales typically require company approval, so you may only be able to participate during structured programs like tender offers.
- Tax implications: Proceeds are usually taxed as capital gains, depending on how long you’ve held the shares.
4. Private Block Trades or SPVs
Sometimes, liquidity comes from investment vehicles like Special Purpose Vehicles (SPVs) or negotiated block trades between large investors. Typically, transfer restrictions on shares of private company stock and whether or not investment dollars need to be pooled together for an investment will dictate the structure.
What it means for you:
- Less common for employees: These transactions usually involve early investors or large shareholders, not broad employee participation.
- Possible opportunity: In rare cases, employees may be invited to sell into an SPV, creating liquidity earlier than an IPO or acquisition.
Why Tender Offers Are Becoming More Common
In the past, employees often had to wait for an IPO or acquisition to unlock the value of their equity. But as companies now stay private for 10, 12, or even 15+ years, that waiting period has stretched far longer than many employees expected.
To address this, more companies are running company-led tender offers. These programs allow employees and early shareholders to sell a portion of their vested equity at regular intervals, even before an IPO.
Why companies offer them:
- Talent retention: Providing liquidity helps employees feel rewarded and reduces pressure to leave for cash elsewhere.
- Employee morale: Tender offers recognize that employees contribute to a company’s growth long before an IPO, and deserve opportunities to benefit along the way.
- Cap table management: Structured tenders give companies control over who owns their shares, keeping the shareholder base organized.
- Investor demand: Late-stage investors often want larger stakes in growing companies, and tender offers create a mechanism for that.
For employees and shareholders, tenders mean you don’t have to wait a decade or more for your equity to become usable. You can sell some shares, diversify your finances, and still participate in the company’s future upside.
What All Liquidity Events Have in Common
No matter the type of event, employees and shareholders should keep a few universal truths in mind:
- Taxes matter: Whether you owe ordinary income or capital gains depends on your equity type (options, RSUs, RSAs) and how long you’ve held your shares.
- Timing is critical: The structure and rules of the event (lock-ups, eligibility, share limits) dictate how much you can sell and when.
- Diversification is smart: Even if you believe in your company’s future, selling some shares during a liquidity event can reduce risk and help balance your overall financial plan.
Liquidity events are the moments when all that hard work — and all those years of holding equity — finally translate into financial results. Whether it’s through an IPO, acquisition, or company-led tender, each path comes with its own opportunities and trade-offs.
For employees and shareholders, the key is to understand what kind of event is happening, how your shares are affected, and how to make decisions that support your long-term goals.
