What Is a Tender Offer?

A tender offer is a company-approved, time-limited offer to buy shares from employees and early investors at a fixed price, organized by the company or a lead investor. For startup employees, it's often the only way to turn private stock into cash before an IPO or acquisition.

Unlike selling shares on a secondary market, a tender offer is organized and approved by the company itself. The company sets the price per share, the total number of shares it will buy, which shareholders are eligible, and the deadline to participate. That makes tender offers more structured and accessible than private secondary sales, which typically require company approval anyway and can be harder to arrange individually.

Tender offers have become increasingly common as startups stay private longer. The average time from founding to IPO now exceeds 10 years. With fewer natural liquidity events on the horizon, companies use tender offers to reward early employees, reduce cap table complexity, and let investors realize partial returns without a full exit.

How Do Tender Offers Work?

1. Offer announcement: The company announces the tender offer, detailing the price per share, total shares being purchased, and eligibility criteria (for example, only current employees, or employees hired before a certain date).
2. Participation window: Eligible employees and investors get a window to accept or decline. Formal tender offers typically stay open at least 20 business days.
3. Completion: If you accept, your shares are sold and you receive cash at the offer price, minus any taxes withheld.

How Tender Offers Are Priced

Tender offer prices usually land between the company's 409A valuation (the fair market value of common stock) and the price investors paid for preferred stock in the latest round. A price above the 409A is a positive signal. A price at or below it deserves scrutiny before you sell.

One tax wrinkle: when the company itself buys shares above fair market value, the IRS can treat the premium as compensation income rather than capital gains. Ask how the company plans to report it.

Why Would a Company Make a Tender Offer?

If your company announces a tender offer, it's usually a signal that leadership recognizes employees need a path to liquidity, and that the company is in a strong enough position to provide one. Common reasons:

Employee retention and morale. Employees who've been vesting for 3 to 5+ years can end up equity rich but cash poor, with significant paper value and no way to access it. A tender offer lets them realize partial value without leaving the company, which can meaningfully improve morale and reduce turnover.

Investor relations. Early investors may want partial returns before a full exit. Tender offers allow this without forcing a premature IPO or acquisition, a useful pressure valve when exit timelines stretch longer than expected.

Cap table management. Companies often use tender offers to repurchase shares from former employees or small holders, simplifying ownership ahead of a future fundraise or exit.

Valuation signaling. The price a company offers implicitly communicates its view of its own value. A tender at a meaningful premium to the last 409A can be a positive signal to employees and the market alike.

Employee Tender Offers: What Startup Employees Need to Know

Receiving a tender offer from your company is an opportunity, but participation isn't automatic, and the decision deserves careful thought.

Eligibility. Not all employees qualify. Tender offers typically require minimum tenure or vesting thresholds, and some are limited to shares that have already been exercised (shares you actually own, not unexercised options).

Participation limits. Most tender offers cap how much you can sell, commonly 10 to 25% of your vested shares. Companies set these limits to preserve employee upside and avoid excessive dilution or cash outlay in a single transaction.

Exercising options first. If you hold unexercised options, you'll generally need to exercise them before participating. That means paying the strike price plus any associated taxes upfront, which can be a significant barrier. ESO Fund can cover those costs so cash constraints don't force you to pass.

Tax treatment. Proceeds from a tender offer are generally taxed as capital gains. Whether you pay short- or long-term rates depends on how long you've held the shares since exercise. If you sell ISO shares less than one year after exercise or two years after grant, it's a disqualifying disposition: the spread at exercise is taxed as ordinary income, not capital gains. See our stock option taxes guide for the full breakdown.

How to Evaluate a Tender Offer

Is the price fair? Compare the offer price to the latest 409A valuation, the last preferred price, and any secondary market data. An offer at or below the 409A is a red flag worth investigating before participating.

How much should you sell? Consider your overall financial picture. If 80%+ of your net worth is tied up in a single private company, taking some liquidity to diversify is generally prudent, even if you're bullish on the outcome.

What are the tax consequences? Check whether your shares qualify for long-term capital gains treatment. If you're a few months short of the one-year holding period, waiting for a future liquidity event could meaningfully reduce your tax bill.

What's the company's trajectory? If an IPO or acquisition seems likely in the next 12 to 18 months, the eventual price could be higher or lower than today's tender price. Neither is guaranteed.

Are there participation limits? Understand the cap on how much you can sell, and whether future tender rounds are likely if you can't sell everything now.

Do you need to exercise first? If you hold unexercised options, you'll need to cover the strike price and taxes before participating. ESO Fund can cover those costs so the upfront burden doesn't force you to sit out.

There's no universal right answer, but employees who are heavily concentrated in a single illiquid position often benefit from taking at least partial liquidity when it's available.

Case Study: CoreWeave's Tender Offer vs. Its IPO

CoreWeave employees who sold in the company's October 2024 tender offer received $46.99 per share. The company later priced its IPO at $40. Waiting for the IPO isn't automatically the better outcome, and lockup periods after an IPO add more uncertainty. Read the full CoreWeave case study.

Tender Offers vs. Other Liquidity Options

Tender offers are one of several ways startup employees can access liquidity. Here's how they compare:

ESO Fund and Tender Offers

A tender offer forces a tradeoff: cash now, in exchange for selling your shares and your upside at today's price. ESO Fund offers a second path.

Need to exercise before you can participate? We cover the exercise cost and the taxes, so cash constraints don't force you to sit out. Option exercise funding

Want cash without selling? Get cash for your private company shares without selling them outright, with no interest, no out-of-pocket cost, and no personal risk if the company fails. You keep your shares and your upside. Share liquidity

You can also combine the two: sell up to the tender cap, then use ESO Fund for the rest of your position. ESO Fund has worked with employees at 700+ venture-backed companies since 2012. See if you qualify.

‍

Written by Jordan Long, CMO at ESO Fund