What Happens in a Liquidity Event? A CFO’s Step-by-Step Guide

Liquidity events are no longer defined by IPOs alone. In fact, just 3% of venture capital (VC) exits in 2024 were IPOs, while a staggering 71% were secondary transactions, where existing shareholders sell their shares to new investors before a company goes public, according to Pulley co-founder Yin Wu. 

For CFOs, this marks a shift from traditional public offerings to more complex, private liquidity events that require careful planning and precise execution.

As companies grow, liquidity events offer an exit strategy that enables founders, employees, and early investors to turn equity into cash. But these events also trigger legal, financial, and compliance obligations that can impact your cap table, tax exposure, and board alignment.

This guide breaks down what liquidity events are and when they occur. We’ll also share in-depth, actionable strategies for modeling equity outcomes, aligning stakeholder incentives, and ensuring audit-ready compliance. Finally, you’ll learn how Pulley supports every stage of liquidity planning, from cap table modeling to tender execution.

What is a liquidity event?

A liquidity event is a transaction that allows stakeholders in a private company, including founders, employees, and investors like private equity firms or VCs, to convert their equity into cash or liquid securities (securities that can be easily and quickly sold for cash on public markets). Liquidity events can include IPOs, mergers and acquisitions, company-led tender offers, or investor-led secondaries.

Liquidity events are important because they unlock a company’s true value. Founders often leverage liquidity to support growth, while employees seek compensation through equity grants that reflect their contributions. Liquidity events also affect ownership structure, tax obligations, and investor returns. 

What are the different types of liquidity events?

Companies can use more than one liquidity event, either at the same time or one after another, to turn equity into cash and liquid assets. Different types of liquidity events require different considerations, including the following:

Initial public offering (IPO)

An IPO lists the company’s shares on a public stock exchange. Investors must hold their company’s shares for a set time, referred to as a lock-up period, before they can sell those shares. 

IPO participants are typically subject to lock-up periods, or contractual agreements with underwriters that restrict share sales for a set time, often 90 to 180 days, after going public. Additionally, insiders must comply with SEC Rule 144, which governs the resale of restricted or control securities and may require holding periods of 6 months to a year.

However, there are alternative paths to accessing public markets beyond the traditional IPO route:

• Direct listings allow a company to go public without creating new shares or raising capital. Instead, existing shares become tradable on the public market. This approach skips underwriters and gives greater control over pricing and dilution.
• SPACs (Special Purpose Acquisition Companies) offer a faster route to going public by merging with a publicly traded shell company that’s specifically formed to take private companies public. This method has grown in popularity for companies seeking speed and reduced IPO complexity, though it comes with its own due diligence and regulatory hurdles.

Understanding the distinctions among IPO types helps CFOs model risk, timing, and shareholder liquidity more precisely.

Acquisition

An acquisition is a liquidity event where one company buys another, offering cash, stock, or a mix of both in exchange for ownership. 

Equity holders, including founders, employees, and investors, can convert their shares into the acquiring company’s compensation structure. This conversion represents a realization of equity value and often delivers immediate liquidity to shareholders.

From a CFO’s perspective, acquisitions require careful modeling of deal terms, vesting schedules, and exit tax implications. These transactions frequently trigger accelerated vesting clauses or require early exercise of options, making cap table clarity and legal preparedness essential for a smooth close.

Tender offer

A tender offer is a structured liquidity event that allows a subset of private company stakeholders to sell their shares. It provides a path to liquidity without requiring the company to go public or be acquired. In these events, shares are sold either back to the company or to outside buyers, depending on the type of offer.

• Company-led tenders are initiated by the company itself, often before an IPO, to give employees and early investors a chance to realize some returns. This supports retention, reduces pressure to sell post-IPO, and provides transparency around equity value. For example, OpenAI ran a $1.5 billion tender in late 2024, so hundreds of employees could cash out at a $157 billion valuation.
• Investor-led secondaries involve external investors buying shares directly from employees or early backers. These transactions are increasingly used by pre-IPO companies to offer partial liquidity while remaining private. This occurred when Blackstone invested $25 billion to buy secondary stakes in private companies, allowing early investors and employees to cash out.

Because tender offers directly convert private equity into cash, they are a critical tool for managing stakeholder incentives and aligning your cap table ahead of future fundraising or exit events.

For CFOs, understanding the mechanics of a tender offer is essential. You must define who can participate, model how much equity will be sold, ensure fair pricing, and maintain regulatory compliance under securities laws. You'll also need to communicate clearly with internal stakeholders to set expectations around timing, eligibility, and payout mechanics, especially if you're offering partial liquidity to employees ahead of a full exit.

When do liquidity events usually happen?

Liquidity events usually occur when a company reaches key business milestones, such as hitting profitability targets, sustaining revenue growth, or establishing a strong market presence. However, liquidity events can also be triggered by regulatory conditions or investor timelines.

For example, when a company approaches 2,000 record holders of a class of equity, it must register with the SEC under the Exchange Act. This threshold often prompts IPOs or structured secondary transactions to comply with regulatory requirements and provide liquidity to shareholders. Liquidity can also be timed around strategic inflection points or market conditions. 

Founders and CFOs should factor in:

• Investor timelines: Most VCs seek liquidity within five to ten years.
• Market conditions: Downturns may delay exits.
• Board readiness: Misalignment on timing or valuation can derail a liquidity plan.

Once you understand when liquidity events typically occur, the next step is knowing how to prepare. Scenario modeling and early communication with investors and employees can help de-risk your timeline. 

The CFO’s playbook: 6 strategies to prepare for a successful liquidity event

Planning a liquidity event requires more than just timing—it’s about strategic execution. CFOs and founders must think ahead, structure terms carefully, and align internal and external stakeholders long before a transaction closes. 

Whether you're planning an IPO, acquisition, or secondary, these six playbook moves will help you mitigate risk, maximize equity outcomes, and guide your company through a successful liquidity event.

1. Model payout scenarios early

Use waterfall modeling to simulate how equity converts into cash under various exit outcomes. 

Factor in preferred stock rights, option pools, and convertible instruments. Understanding who gets paid, when, and how much enables CFOs to avoid surprises and align expectations across the board.

2. Negotiate equity terms upfront

Before a liquidity event is on the horizon, review and refine terms like liquidation preferences, participation rights, drag-along clauses, and vesting schedules. These details materially impact who benefits during a liquidity event. Early-stage decisions can compound into misaligned outcomes if not modeled in advance.

3. Communicate with stakeholders

Transparent and proactive communication builds trust. Host equity education sessions for employees, walk through scenario modeling with your board, and establish a communication plan for investors. Pulley’s cap table visibility tools make it easier to share up-to-date ownership insights.

4. Prepare your cap table

In any liquidity event, expect scrutiny. Ensure every grant is signed, every share issuance reconciled, and all board approvals are documented. 

Pulley’s cap table management tools create a single source of truth so you can respond quickly to buyer or investor diligence requests.

5. Optimize for tax outcomes

Collaborate with legal and tax advisors early to guide shareholders on 83(b) elections, qualified small business stock (QSBS), and alternative minimum tax (AMT) implications. 

Pulley supports tax-related workflows such as 83(b) election processing and provides comprehensive equity scenario modeling tools that help identify tax planning opportunities before liquidity occurs.

6. Run tenders with clear rules

Whether you're executing a company-led tender or enabling secondary sales, CFOs must define eligibility, pricing, timing, and legal processes clearly. Pulley’s partnership with Nasdaq Private Market enables a full-stack solution for managing stakeholder communications, compliance requirements, and secure transactions.

Liquidity event benefits and challenges

Liquidity events unlock real value for stakeholders, but they come with operational, legal, and emotional complexity. Knowing the potential upsides and pitfalls helps CFOs and founders manage expectations and drive better outcomes.

Benefits:

• Access to capital without going public: Raise funds through structured secondaries or private placements without the pressure of a full IPO.
• Early liquidity for employees and investors: Give stakeholders the opportunity to realize value sooner before an acquisition or IPO.
• Incentivize retention: Offering partial liquidity can reduce attrition and motivate key team members to stay through the next phase of growth.
• Cap table cleanup before next raise: Clear out inactive stakeholders, consolidate ownership, and prepare for the next financing or exit with a cleaner equity structure.
• Shareholder diversification: By opening up ownership to new institutional or public investors, companies reduce concentration risk and broaden their investor base.

Challenges:

• Regulatory complexity: Compliance with SEC rules, 409A valuations, and disclosure obligations requires meticulous preparation.
• Managing employee expectations: Without clear communication, partial liquidity events can lead to confusion or dissatisfaction around payout timing or eligibility.
• Valuation uncertainty: Shifting market conditions or opaque pricing in secondary markets can complicate decision-making.
• Stakeholder misalignment: Conflicting incentives across employees, investors, and board members can create tension around timing and terms.

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Understanding these tradeoffs helps CFOs proactively plan, align stakeholders, and choose the right liquidity path. With the pros and cons in mind, let’s explore how to prepare your company for a successful liquidity event.

How to prepare your company for a liquidity event

Success in a liquidity event starts long before the deal closes. Founders and CFOs must build a strong operational and compliance foundation to support strategic outcomes. Here’s how to prepare:

Maintain accurate cap tables

Ensure that every share, option, and agreement is documented, approved, and easily accessible. Start by reconciling historical equity grants, resolving discrepancies in board approvals, and maintaining consistent data across legal systems. 

Pulley simplifies this process by automating updates and syncing records across stakeholders. It also supports clean migrations from Carta, ensuring your data is accurate from day one, and provides full audit trails for diligence.

Develop a clear product and growth roadmap

CFOs should collaborate with product and GTM teams to craft a compelling narrative about the company’s future. Outline milestones tied to valuation growth and ensure alignment with fundraising and exit timelines. This vision builds confidence in the company's long-term potential. 

Pulley enhances this alignment by modeling how growth-stage decisions, like hiring plans or sales velocity, impact equity outcomes across scenarios.

Ensure regulatory compliance

Liquidity events invite heightened scrutiny. CFOs should proactively identify regulatory obligations such as ASC 718 for stock-based compensation and 409A for fair market valuation. 

Pulley helps companies stay compliant by providing accurate 409A valuations, guiding teams through ASC 718 calculations, and preparing audit-ready documentation that mitigates risk and delay.

Prepare for due diligence and investor scrutiny

Start due diligence readiness early by organizing legal, financial, and HR documents in a centralized, secure environment. 

Pulley provides investor-ready communication hubs and dashboards that track ownership, vesting, and signature status—so you’re never scrambling to pull files at the last minute. This creates transparency and builds investor confidence at every stage of the liquidity journey.

Pulley scales with startups from early-stage to IPO

Navigating a liquidity event is one of the most high-stakes moments in a company's lifecycle. From modeling payouts and negotiating equity terms to preparing for diligence and managing stakeholder expectations, CFOs must juggle strategy, compliance, and communication with precision.

Pulley is built to support finance teams through every step of that journey. Whether you're preparing your cap table for due diligence, modeling different deal structures, or aligning employees and investors before a secondary, Pulley makes the process faster, clearer, and more compliant.

We’ve also partnered with Nasdaq Private Market (NPM) to bring private companies a best-in-class liquidity solution, from tender execution to stakeholder communications.

Ready to plan your liquidity event with confidence? Set up a demo to see how Pulley can help you move forward with clarity and control.

Liquidity event FAQs

What is a liquidity event?

A liquidity event is a transaction where private company equity is converted into cash or liquid securities that can be easily and quickly sold for cash on public markets. This includes IPOs, acquisitions, tender offers, and secondary sales, all of which allow shareholders to realize the value of their holdings.

What are common types of liquidity events?

The most common types include:

• Initial Public Offering (IPO): The company lists shares on a public exchange, enabling early investors and employees to sell equity.
• Acquisition: A buyer purchases the company, offering cash or stock in return for equity.
• Tender offer: The company or outside investors buy back shares from existing shareholders, typically before an IPO.

When do liquidity events typically occur?

Liquidity events often happen after significant growth or funding milestones. They may also be triggered when a company nears 2,000 record holders of a single class of equity, at which point it must register with the SEC under the Exchange Act. Reaching this threshold often prompts IPOs or structured liquidity transactions to meet compliance requirements and manage shareholder expectations. Liquidity can also be timed around strategic inflection points or market conditions.

How can Pulley assist in preparing for a liquidity event?

Pulley helps CFOs and finance teams:

• Clean and manage cap tables with full audit trails.
• Model outcomes for different exit types (IPOs, acquisitions, tenders, secondaries).
• Run investor-ready diligence processes with complete, real-time equity data.
• Educate teams and align stakeholder expectations ahead of a liquidity event.

Pulley equips finance teams with the tools and insights needed to manage liquidity events with greater clarity and alignment across stakeholders.

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