You were worth a billion dollars in stock at the last round's valuation. Unfortunately, your company isn't public, so nobody actively wants to buy shares. You needed to come up with $8 million for that final divorce settlement payment, payable in cash. But you couldn't. You didn't have the cash liquidity to do so.
So now he gets all of your stock. Poor you. Literally.
That's what happens when you have a liquidity squeeze, i.e. you can't get cash to pay for things you have to pay for, no matter how much he bores you after you said, "I do."
Related or Semi-related Video
Finance: What is liquidity preference?27 Views
finance a la shmoop. what is liquidity preference?
yeah well liquidity is a good thing you want it. being liquid means that you have
cash which gives you options to you know buy stuff. and yeah even the Amazon River [money leaves a wallet in the grocery store]
shops at Amazon. all right so if your flavor of
investment has a liquidity preference over someone else's then your investment
all else being equal is preferable. see the liquidity preference . specifically if
you have liquidity preference and usually this is found in the form of
early stage of venture capital investor term sheets for investing in companies
in the form of convertible preferred stock- like it converts into common at
the IPO or something like that- then you get paid before everyone else
gets paid -at least in this form of stock- if the company gets sold.
all right well technically that is, but the company is sold and your convertible
preferred hasn't converted into common shares yet this company didn't go public. [convertible stock made into common stock]
but so like let's think about the example where if the company raised
twelve million bucks in preferred stock, which all had a liquidity preference
over and above common ,and then the whole company was sold for just fifteen
million dollars. well then those with liquidity preference would get liquid
first .ie they get their twelve million bucks. then the remaining three million
would be sprinkled around everyone else who was do the dough. plus any dividends
or accrued assets that have come our way otherwise. and yes technically debt
holders get paid ahead of the various series preferred investors who then get [list of who gets paid first]
paid ahead of the common shareholder but that's a different video. all right so
when it comes down to it you want to have liquidity preference. clearly I
prefer to be liquid myself. [man floats in lake in an inner tube]
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A liquid market is a market featuring high trading volumes, i.e. investors actually want to put their cash to work.