What is a liquidity event for a private company owner?

What is a liquidity event?

A liquidity event is a transaction that turns an owner's illiquid stake in a private company into cash or marketable assets. Sale of the company, an IPO, a merger, a recapitalization and a secondary sale of shares are the classic examples. The common thread is that ownership value that was locked inside the business becomes money in someone's hands.

What counts as a liquidity event for a private company?

Which type fits depends on the owner's goals. Advisors such as brokers, investment bankers and CPAs help scope them. The deeper question is whether the owner wants to keep control.

Is a records license a liquidity event?

It is a proceeds event for the company, not a sale of shares. A company that qualifies can license operational records to AI developers, typically exclusively for AI training for an agreed term. The company keeps ownership of the business and of the data, receives one all-in price including SourceX's fee, and is paid once, typically within about 60 days of invoicing after the buyer selects the data.

That makes it different from the entries in the table above in four ways:

• No shares or business assets change hands; the data is licensed, not sold.
• It is not a loan, so there is no payment schedule or collection risk.
• It is not contingent on a sale, though it should be disclosed to a later buyer.
• Nothing is binding until the company agrees price and terms and signs.

Whether the proceeds are classed as ordinary income, a distribution or something else is for the company's tax adviser. This is general information, not legal, tax or financial advice.

Why timing matters to owners and their advisors

Liquidity events cluster around moments of change: retirement, a partner dispute, health, a system migration, a financing round. Succession outcomes also vary. For a view of what happens when no one has planned, see what happens to a business when the owner dies. For an industry-specific example of planning for succession, read construction company succession planning.

When a sale falls apart, owners often need an alternative source of proceeds fast. The guide on when a business sale falls through walks through the next steps. After a successful sale, what to do after selling your business covers what the owner does next. Funding sources that do not give up ownership are surveyed in non-dilutive capital for established companies.

How to tell whether a company could license its records

Use this quick screen with an owner:

• 50+ full-time employees at peak (contractors excluded)
• Several years of documented operations
• Records in many systems, such as email, chat, CRM, finance, support and engineering
• The company created the records and has the right to license them
• An owner, CEO, CFO or authorized representative can sponsor it
• Someone can export the data

The company fit checker is a preliminary, non-binding version of this screen and needs no contact details. The full baseline is on who qualifies.

Limits

A records license is a poor fit when the data belongs to the company's clients, is mostly consumer personal data or protected health information without the right authorization, has been deleted, or has already been licensed for AI training. It also does not replace a sale if the owner wants out.

Next step

Advisors who talk to owners about liquidity can register as a partner and introduce companies that screen well. Owners can apply directly at sourcex.si/apply. Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company, paid only after the buyer pays and SourceX receives its fee; no reward is guaranteed.