Should I accept a tender offer? What startup employees should know
7 min
San Francisco native (yes, really). @uw and Lowell High alum. I like to nerd out on fintech, stock options and taxes.
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San Francisco native (yes, really). @uw and Lowell High alum. I like to nerd out on fintech, stock options and taxes.
A tender offer can feel like the moment your startup equity finally becomes real.
For years, your shares have been numbers on a portal. Then one day your company offers to buy some of them, or gives outside investors the chance to.
Suddenly, your equity isn't just something you hope will be worth something one day: it's cash you could actually put in your bank account.
That's exciting, but it can also bring up a whole host of questions:
Do you take the money now? Or keep your shares and hope they're worth much more after an IPO or acquisition? Will another liquidity opportunity come along? And how much of the proceeds will you actually keep after taxes?
A tender offer can be an excellent opportunity, but it isn't always the best one. Before you decide, it's worth understanding how tender offers work, what you're giving up when you sell, and what alternatives may better fit your goals.
In this article, we’ll cover:
Note: Secfi helps startup employees and executives understand and act on your equity, including tender offers and non-recourse financing. Try our free AI equity assistant Maeve.
A tender offer gives private company employees and other shareholders the opportunity to sell a certain number of shares at a fixed price during a specific time frame. The shares can either be sold back to the company (known as an issuer buyback) or to outside investors (a third-party tender offer).
For many employees, it's the first opportunity to turn startup equity into cash before an IPO or acquisition.
Companies most commonly run tender offers alongside a fundraising round, when new investors are looking to buy shares. Instead of issuing new shares and diluting existing shareholders, the company can allow investors to purchase existing shares from employees and early investors.
Some companies (particularly later-stage startups) also run tender offers outside of fundraising rounds. These programs can reward employees, provide liquidity, and give long-term team members an opportunity to realise some of the value they've helped create without waiting for a traditional exit.
It's also worth knowing that a financing round associated with a tender offer may increase the company's 409A valuation (fair market value). A higher 409A valuation can increase the cost of exercising stock options, making the timing of your exercise decision an important consideration.
Your company decides who is eligible to participate in a tender offer, what type of equity can be sold, and how much each person can sell.
If you’re eligible and already own shares, the decision is usually more straightforward: You decide whether to sell some of your eligible shares at the tender offer price, and, if so, how many.
If you have unexercised, vested stock options, participation depends on how your company structures the tender offer. In some cases, your company may allow you to exercise your options and sell the resulting shares as part of the tender offer. In other cases, only existing shareholders may be eligible, or the program may apply only to certain employees, former employees, or investors.
If your company allows it, you may even be able to cover your exercise costs as part of the sale (a cashless exercise).
First, the company announces that it’s running a tender offer. Your company will provide key details, including:
Who is eligible: Current and former employees
How much you can sell: You typically can’t sell all your shares; limits are often around 10-25%
How much you’ll receive per share: This could be the current 409A price, though oftentimes can be higher if a tender is happening concurrently with fundraising
Timing: There will be a start date and deadline for submitting your decision about how many shares you wish to sell (if any). Under the rules set by the U.S. Securities and Exchange Commission (SEC) and according to the Securities Exchange Act of 1934, tender offers must be held open for at least 20 business days.
Your company will provide official documents spelling out all the terms and conditions, as well as information about the company and its financials. It may also offer info sessions where you can ask questions and learn more about the process.
Once the deadline has passed, your company will tally up how many shares people indicated they want to tender.
In some cases, there is a minimum number of shares that must be met for the tender transaction to take place. For example, a group of investors led by SoftBank agreed to buy existing shares of Uber as part of a tender offer in 2017. If there weren’t enough interested sellers to reach a 14% stake in the company, the investors were able to walk away from the deal.
It’s also possible for a tender offer to be oversubscribed. A company could, for example, specify that it’s able to buy back 1,000 shares, then receive sell orders for 1,500 shares. The company would have to allocate 1,000 shares across the orders. This is often done on a pro rata (proportional) basis.
It’s worth noting that any exercise of your vested stock options is likely irrevocable, regardless of whether your shares are purchased as part of the tender offer. So, if you exercise 100 options and intend to sell 100 shares as part of the tender, it’s possible that you could only end up being able to sell 80 shares, but you can’t rescind the exercise of 100 options.
If you end up selling shares, you’ll receive the proceeds soon after the transaction settles.
Whenever you exercise options and/or sell shares, you’ll probably be faced with a tax bill. How much you’ll owe is influenced by a lot of moving parts, including what kind of options you have, and how long you’ve held the stock.
Depending on the type of equity you hold and when you sell, some proceeds may be taxed as ordinary income, while other gains may qualify for capital gains treatment. For example, ISOs, NSOs, and RSUs can each create different tax outcomes in a tender offer, especially if exercising options is part of the transaction.
If you participate in a tender offer, your company will likely withhold a portion of your proceeds to submit as taxes on your behalf. However, your company’s withholding may not be enough to cover your actual tax bill, so you could be responsible for paying the rest.
To see what taxes you might owe, you can enter your details into our free AI equity assistant Maeve. Maeve connects to Carta or lets you upload your equity documents, then helps you understand your stock options, taxes, and possible outcomes in one place.
For illustrative purposes only. Actual results may vary and there is no guarantee of any particular outcome.
Deciding whether to participate in a tender offer is a very personal decision. Everyone will weigh the relevant factors differently.
There are pros and cons to participation:
On one hand, a tender offer allows you to tap into liquidity at that moment, reducing an element of uncertainty. You can convert a portion of your options or stocks into cash right now, no need to wait for an IPO or other exit scenario.
On the other hand, participating in a tender offer means forgoing any future potential upside for those shares. Assuming your company IPOs, or goes public, and it trades at a higher price than you sold it for during the tender offer, you’ll miss out.
Any time you’re thinking of selling options or shares, whether it’s part of a tender offer or otherwise, several considerations come into play, such as:
The tax implications particular to your unique situation
Your short- and long-term financial goals
Your views on the trajectory of the company’s share price and your ability to assess its outlook objectively
Your risk tolerance and need to diversify
Because a tender offer will likely have a complex effect on your personal financial situation, it’s always best to consult with your financial advisor and/or tax professional when deciding whether to participate and to what extent.
A tender offer can be a valuable opportunity to turn some of your private company equity into cash, but it’s not the only path available. The biggest downside is that once you sell those shares, you no longer benefit if they increase in value later. That tradeoff may be worth it if you need liquidity now, but it’s worth comparing against other options before you decide.
Here’s how other routes compare to participating in a tender offer.
| Action | What it may help with | What to consider |
|---|---|---|
Participate in the tender offer | Access cash now, diversify | You give up future upside on the shares you sell |
Exercise and hold with cash or personal loan | Keep more future upside and potentially improve tax treatment | Requires cash upfront or a personal loan, and creates risk if the company doesn’t exit |
Use non-recourse financing | Exercise options without using personal cash or selling shares, in some cases may also provide access to liquidity | You may repay the financing plus a fee after a future liquidity event |
Sell shares on the secondary market | Access liquidity outside a company tender offer | Needs company approval and buyer demand, no participation in future upside for any shares you sell |
Wait for a future exit | Avoid making a decision now and keep all equity exposure | A future IPO or acquisition isn’t guaranteed, no cash in the meantime |
If you want the most potential future upside while avoiding spending all your available cash on options, non-recourse financing could be worth considering.
With non-recourse financing, a provider like Secfi gives you the funds to exercise your stock options, cover the taxes due at exercise, and sometimes extra cash to use at your discretion.
Unlike a traditional loan, you don’t make monthly payments, and personal assets like your house or savings aren’t at risk.
Instead, repayment is tied to a future liquidity event, such as an IPO, acquisition, or eligible secondary sale. If your company doesn’t exit or your shares become worthless, you don’t owe the financed amount back. This may be useful if you believe your company still has room to grow, so you don’t want to give up as much potential future value as in a tender offer.
By exercising earlier, you may also be able to start the clock toward long-term capital gains treatment (depending on your equity type, timing, and tax situation). You also won’t have all your assets tied to one company, known as concentration risk. And instead of using your cash to exercise options, you can use it for something else that’s aligned with your goals.
The tradeoff is that non-recourse financing isn’t available for every company or every employee.
A tender offer can be a good opportunity to get liquidity from your private company equity, but it’s also a decision with long-term consequences. Secfi was created to help startup employees and executives decide what balance of risk and reward makes sense for your current situation.
We’ve worked with 55,000 founders and employees across the US with $90B worth of equity registered on the platform, supporting more funding than any other equity financing partner in the country.
Here’s why employees at companies including DoorDash, SpaceX, and Reddit use Secfi to help them understand their liquidity options.
The hardest part of a tender offer is that you’re making a decision with incomplete information. You may know the tender offer price, but you don’t know what your company will be worth in the future, or what gains you might give up by selling now.
You also need to understand what you may actually keep after taxes. Your tax outcomes can be a major consideration (and often surprise), depending on your equity type, income, location, and timing.
Secfi’s purpose-built AI equity assistant Maeve can help you model different scenarios across your stock options and shares. For example, you can compare what might happen if you sell a portion of your equity now, keep more shares for a future exit, or exercise options before your company goes public with different types of financing.
Maeve is easy to set up, connecting in seconds to Carta, or you can enter your information manually or by scanning your documents. Then you have full access to ask questions and fact-check assumptions as you plan your equity future. Plus, it can help you feel a little less sticker shock in the taxes department.
For illustrative purposes only. Actual results may vary and there is no guarantee of any particular outcome.
Tender offer decisions can get complicated quickly, especially if you have many equity types, or multiple goals like paying for your children' s education or planning for your retirement.
Secfi’s Wealth team works with startup employees and executives who are navigating these exact decisions. We can help you understand tender offers and think through your broader financial planning.
That can be especially useful if you’ve worked with a traditional advisor before and felt like they weren’t fully optimizing for your stock options, private company shares, equity-specific taxes like alternative minimum tax (AMT), or tender offers.
And if you’re looking to explore financing, our equity strategists have helped startup employees plan and receive $400 million in financing to help own their options.
A tender offer may be the right choice, but it may not be your only choice. You could also be eligible for non-recourse financing or a secondary sale.
With Secfi’s non-recourse financing, you may be able to exercise your stock options, cover related taxes, or secure cash to spend at your discretion. If your company has a successful liquidity event, you repay the amount financed plus a fee. If your company doesn’t exit or your shares become worthless, you don’t owe the financed amount back. None of your personal assets are on the line, and your debt-to-income ratio isn’t impacted.
For more information on how this works, read How Secfi financing works – our business model explained.
We can also help you explore secondary market opportunities if selling your shares outside a tender offer is available and permitted by your company.
After working at Stripe for several years, Sam still only had a vague understanding of her equity. So when she first considered participating in Stripe’s tender offer, Sam felt stuck.
“Honestly, I went back and forth. I thought I wasn't going to do it, and then I did. And then I logged onto Shareworks and I had actually missed the window,” she said.
So when the next tender offer came around, Sam wanted to be prepared. Unfortunately, the offer email came right when she was on her honeymoon. After using some of Secfi’s free tools online, she decided to speak with an advisor at Secfi Wealth.
“Chris just gave us a really good feeling and [it] felt like he really kind of approached it with a lot of empathy and heard us out,” Sam said. “He didn't pressure us in any particular way. He knew what questions to ask, sensed the level of struggle that we were at, then just guided us from there.”
Ultimately, Sam decided to sell 33% of her Stripe stock in the tender offer. The plan helped her cover the tax liability tied to her RSUs, build cash reserves, reinvest into a diversified portfolio, and still keep some meaningful future upside through her remaining equity.
Read the full case study: Why a Stripe employee hired a financial advisor and decided to sell in a tender offer
Testimonials are specific to an individual Client’s experience and may not be representative of all Clients. Unless otherwise indicated, Clients offering a Testimonial do not receive compensation and their statement does not present a conflict of interest.
A tender offer can be a valuable chance to turn private company equity into cash.
But before you sell, it’s worth comparing the tender offer with your other choices. Secfi can help you model those scenarios and help you pick what makes sense for your situation. There’s a reason more than 55,000 startup employees representing $21B in equity come to Secfi when they’re considering their next moves.
If you’re considering a tender offer against other options, connect your equity details to Maeve, or speak with Secfi’s team to understand which routes may be available for your situation.
If you don’t sell your shares in a tender offer, you’ll usually continue holding them. That means you may still benefit if your company’s value increases in the future, but you also keep the risk that your shares may not become liquid for a long time, or may end up being worth less later.
You may also have another chance to sell in a future tender offer, secondary sale, IPO, or acquisition, but none of those are guaranteed. Before deciding not to sell, it can help to use a tool like Secfi’s AI equity assistant Maeve to model what your shares could be worth across different outcomes.
A tender offer is usually a private liquidity event where eligible shareholders can sell some of their shares back to the company or to investors at a set price. The company stays private, and participation is usually limited to certain employees, investors, or shareholders.
An IPO, or initial public offering, is when a private company lists its shares on a public stock exchange. After an IPO and any required lock-up period, employees and investors may be able to sell shares on the public market.
In simple terms: a tender offer can give private company shareholders a limited chance to sell before an IPO, while an IPO turns the company into a publicly traded company. Whether you’re considering participating in a tender offer or planning around a potential IPO, Maeve is a free AI equity assistant you can try to model different scenarios.
An example of a tender offer is when a private company gives eligible employees the option to sell up to 20% of their vested shares at a set price during a specific window.
For example, say you own 10,000 vested shares and your company runs a tender offer at $25 per share. If you’re allowed to sell 20%, you could sell 2,000 shares for $50,000 before taxes and fees. You’d keep the remaining 8,000 shares, which means you’d still have exposure to the company’s future value. Note that this is just an example, and you should check with a tax professional before making any equity decisions.
Secfi and our free AI assistant Maeve can help you compare examples like this against other choices, such as selling fewer shares, holding everything, or using financing to exercise options.
The main risk of a tender offer is that you may sell shares that become more valuable later. Once you sell, you no longer benefit if those shares increase in value after a future IPO, acquisition, or secondary event.
There are also tax risks. Depending on your equity type, holding period, income, and location, a tender offer may create a tax bill that reduces how much cash you actually keep. Your company may withhold taxes, but the withholding may not cover your full liability.
There may also be timing and eligibility limits. Tender offers often have strict windows, company-specific rules, and caps on how much you can sell. That’s why it’s worth comparing a tender offer with other paths before deciding using our AI equity assistant Maeve.
The biggest benefit of a tender offer is liquidity. If you’ve held private company shares for years, a tender offer may give you a rare chance to turn some of that paper value into cash before an IPO or acquisition.
A tender offer can also help you diversify, reduce concentration risk, cover taxes, build cash reserves, or fund personal goals like buying a home. And because you don’t always have to sell all your shares, you may be able to take some money off the table while keeping a stake in the company’s future.
If you’re deciding how much to sell, Secfi can help you model your tender offer, understand the tax impact, and compare it with alternatives like holding, exercising, secondary sales, or non-recourse financing.
The tool shown here uses artificial intelligence and is for illustrative purposes only and not necessarily indicative of future results and there is no guarantee that similar results can be achieved. The information provided by the tool is not professional advice and is not intended by Secfi, Inc., its affiliates, and Secfi representatives, to be deemed as investment, legal, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. Secfi does not review the accuracy or completeness of the information provided to us within the tool.