Routes to Liquidity for our Members

Founders, investors and other holders of startup stock have always had a problem. Their shares might be valuable on paper, but they’re subject to restrictions from being sold. You might hold valuable shares but what use are they if you can’t liquidate them by converting them to cash?

Well, following some developments in the financial markets and easing of restrictions by the SEC, there are now options open for liquidating shares in startup ventures.  Liquidity.Club is created to help entrepreneurs, investors and everyone involved in tech startups to make connections, build valuable businesses and ultimately cash out at a profit. Let’s look at some of the routes to liquidity:

  1. M&A—Selling the company in an M&A transaction was one of the few options open in the past, and involves selling all the shares, or all the assets, of the company in a merger or acquisition. Sometimes the purchase price is paid in cash. Sometimes in stock in the parent company and sometimes in a combination of both. There are tax implications and all sorts of nuances surrounding M&A transactions. Liquidity.Club provides a platform to discuss these issues and help members to successfully negotiate M&A sales and purchases of tech startup companies.
  2. Initial Public Offering (“IPO”). This is where an investment bank essentially sponsors the floatation of the company shares on the stock market, where the shares can be acquired by the public. This option has been around for several decades, and it has worked well for many large companies, as well as working well for the investment banks, who earn substantial fees and trading profits from IPO’s.  An IPO is somewhat expensive, burdensome on management and is only a viable option for a very small percentage of elite growth companies.  Hence, some new routes to liquidity have become popular in recent years.
  3. Direct Offering. IPO is no longer the only route to access the NASDAQ, NYSE and other public stock markets. It’s now possible for a company to list its shares directly. This does require the company to register with the SEC and start reporting audited results, but it provides a less costly and burdensome route to liquidity for startup companies today.
  4. Special Purpose Acquisition Companies (“SPACs”). SPACs provide an alternative route to the public markets than a traditional IPO by registering a blank check company with the SEC, raising finance, then acquiring a company. For the acquired company, it’s something of a back door to the public markets as the shareholders in the acquired company are provided with stock in the public SPAC company, which can be traded and converted to cash. 
  5. Secondary Markets. Where IPO and Direct Offerings require the shares to be registered with the SEC, and requires the company to report material information on a regular basis, shares in unregistered startup ventures can now be sold on the secondary markets so long as they are sold to accredited investors and certain (unaudited) financial information is provided to the investors. This new development offers a lucrative route to liquidity for all types of startup shareholders.
  6. OTC Markets. Shares in startup ventures can be traded in the OTC (over the counter) markets, which are more accessible than the NYSE and Nasdaq, but not so liquid. The SEC requires accurate disclosure of material information to investors but the requirements are not quite as demanding as the large exchanges.
  7. Stock Pooling. Unregistered shares in startups can be pooled in arrangements where the shareholders agree to exchange their shares for shares in the aggregated pool. Under this arrangement, when one company hits a liquidity event, like IPO, Direct Offering or M&A sale, all the members of the pool get to participate by cashing out some of their own interests.

So, Liquidity.Club helps its members to convert their startup shareholdings into cash, but this is only part of the story because it also helps its members build valuable businesses and get into position to cash out through a variety of means:

  1. Raising Finance. Liquidity.Club provides members with a directory of investors, and tools to match investors with startups in different industries, geographies and stages of development. Club provides investors with access to some of the best startups in the world, providing unique vetted dealflow.
  2. Education. Through its partnership with Silicon Valley Business School, Liquidity.Club provides members with an extensive knowledgebase of materials designed to help with all aspects of building a fundable business, raising finance, hitting milestones, and ultimately cashing out through a liquidity event.
  3. Networking & Connections. Knowing how to build a valuable business and how to cash out is very helpful, but building a network of connections is another vital component that Liquidity.Club has to offer.  Members are matched with members that can help with business development, financings and all types of relationships can be formed that lead to profitable transactions. Expanding internationally, and into new fields is made easier by  connecting with members in new geographic markets and new market sectors. 

Liquidity as a Target Destination for your Startup Journey

“If you don’t know where you are going, you might wind up someplace else.” Yogi Berra.

Startups that achieve successful exits have usually been targeting and working toward those exits for some time. Our methodology shows you how to target an exit, plot out your route to get there, then drive your startup toward that exit at full speed.

Liquidity as a Mantra to Guide your Decisions

When you’re targeting liquidity, this will help you make all sorts of decisions along your startup journey. For example, if you’re targeting liquidity in the US, you won’t register for ‘S” Corp. tax status—unless you want to pay unnecessary taxes to the IRS when the company is sold. Thinking “Liquidity” will help you navigate toward a profitable exit.


Some of the hottest startup members will be invited to join the XFund, where they pool some of their shares with other hot startups. With the Liquidity.Club SPAC, XFund members are able to participate in at least one successful exit.

Liquidity.Club SPAC

When Liquidity.Club forms a special purpose acquisition company (SPAC), it will select the hottest startup from the XFund to take to the public markets through an IPO process. Following IPO, shares are liquid as they are able to be sold to the public.

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