Liquidity is a financial concept that measures how fast an investor can convert an asset or an investment in a business into cash without heavy discounting.

Investing in most publicly-traded companies is considered a highly liquid investment because shareholders can sell at any time the markets are open. In contrast, investing in privately-held businesses is a highly illiquid investment because shareholders don’t control when or how they will get their money back – that’s largely up to the company’s board of directors and management team.

The happy time when angel, venture capital fund and buyout fund investors get their money back plus a sweet profit is called an “exit” or “liquidity event.” Entrepreneurs usually get to cash out too, but their investors usually get paid back before entrepreneurs.