A tender offer is a company-organized program that lets employees and early investors sell shares to an approved buyer at a set price.
Tender offers have become the standard liquidity mechanism at late-stage private companies. Instead of employees and early investors negotiating one-off secondary sales — which are administratively painful, expose valuations inconsistently, and create winners-and-losers dynamics — the company organizes a structured program: an approved buyer (often a growth-stage investor), a fixed price, a defined participation window, and clear caps on how much each holder can sell. The result is orderly, fair, and privacy-preserving liquidity that dramatically eases retention pressure without forcing the company toward an IPO.
A tender offer typically involves: (1) the company negotiating with one or more institutional buyers on price, size, and structure; (2) the board approving the transaction; (3) a formal offer document sent to all eligible sellers (employees with vested options and shares, former employees still holding shares, early investors); (4) a defined election window (usually 20-30 business days per SEC rules for tenders involving more than 35 non-accredited holders); (5) proration if oversubscribed; (6) closing and share transfer. The company usually engages a specialized law firm and often a platform (Carta, Forge, Nasdaq Private Market) to administer.
Tender pricing is usually set at a discount to the most recent primary round — 10-25% is typical for the seller — reflecting the illiquidity and the buyer's willingness to take a large block. The pricing is disclosed to all participants; that transparency is a feature, not a bug. Because tenders are secondary (shares change hands, no new shares issued), they don't dilute the cap table directly. But when they include a small primary component (some tenders are structured as tender + $X of primary at the same price), you get both liquidity and fresh capital.
Companies typically cap what each employee can sell — 15-25% of vested holdings is common — to preserve alignment. Vesting cliffs matter: usually only vested shares are eligible. Sometimes an early-tenure cap applies (employees with less than 2 years get lower caps or are excluded entirely). Former employees are usually included but sometimes capped separately. Eligibility criteria and caps must be disclosed uniformly to all sellers under securities law — you cannot cut a special deal for one executive quietly.
Trigger conditions: (1) meaningful early-employee cohort with 4+ years of vesting and no liquidity, (2) IPO not imminent (18+ months out), (3) recent primary round establishing a defensible price, (4) buyer demand from growth funds or crossover investors, (5) enough shares available to run a $50M+ program (below that, administrative cost per dollar gets prohibitive). Cadence: many companies run tenders every 12-18 months once they hit late-stage; some run them annually as part of a formal liquidity program.
Common failures: pricing the tender too aggressively (below fair value) and demoralizing sellers; pricing too generously and setting a mark that complicates 409A and future primary rounds; poor communication that leaves employees confused about tax treatment (long-term vs. short-term capital gains, AMT exposure on ISO exercises); inadequate election window causing rushed decisions; and failing to disclose material information uniformly (a Rule 10b-5 exposure). Engage experienced securities counsel — this is not a place to save legal fees.
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