What milestones can trigger liquidity
Almost any objective or verifiable event can serve as a milestone:
- Reaching a revenue threshold (e.g. $5M ARR, i.e. annual recurring revenue)
- Completing a defined phase of construction or development
- Achieving regulatory approval or licensing
- Hitting a DSCR target in an infrastructure project
- Receiving first drawdown from a long-term off-take agreement
- Completing a refinancing event that releases equity capital
How milestone liquidity works in practice
At its simplest: the parties agree that if the project reaches Milestone A by a defined date, the investor has the right to sell back up to 50% of their position at a defined price or formula. If the project reaches Milestone B, the investor can sell the remaining position, or roll it at a renegotiated return.
The sponsor retains the right to continue building. The investor has a known exit path tied to the project's actual performance, not an arbitrary timeline.
Why this is better than a single exit model
For investors, milestone liquidity provides predictable return of capital, alignment with project performance, and a known maximum hold period for each tranche. For sponsors, it creates an investor who is less likely to push for a premature exit, and a structure that rewards performance with capital return.
The design principle
Milestone-based liquidity requires that the milestones are objective and verifiable, achievable given the project's trajectory, and meaningful representing genuine value creation.
When designed well, milestone liquidity transforms the investor relationship from an adversarial exit negotiation into a shared performance framework.