Employee tender offers, explained

For most startup employees, equity is the largest asset they cannot spend. The traditional answer — wait for the IPO — has become a decade-long ask at exactly the companies whose equity is worth the most. The tender offer is the mechanism that grew to fill that gap, and it has moved from occasional favor to standard practice: the largest private companies now run them on a schedule, and mid-sized ones increasingly follow to stay competitive on retention. Here is how they actually work from the employee's side of the table.

What a tender offer is

A tender offer is a company-organized window in which eligible shareholders — usually employees and sometimes early investors — may sell up to a set portion of their vested stock, at a single price, to buyers the company has approved. Everything that makes one-off secondary sales slow is pre-solved: the company has already waived its transfer restrictions for the event, vetted the buyers, set the price, and standardized the paperwork. The employee's decision compresses to two questions — whether to sell, and how much of their allowance to use.

Who sets the price, and how

The price is negotiated between the company and the anchor buyers — typically existing investors deepening their position or new investors buying their way in. It usually sits at or near the most recent primary round, and in strong companies it becomes the de facto new mark. What employees should understand is that it is a negotiated price, not an appraised one: the company has an interest in a healthy print, buyers in a sensible entry, and the employee takes or leaves the result. There is no bidding for a better price inside a tender — the trade-off for convenience is price-taking.

What employees typically give up

Three things, none hidden but all worth naming. First, upside on the shares sold — the entire point of selling early is trading future value for present certainty, and in companies that keep compounding, the shares sold in a tender will usually have been the most expensive money the employee ever took. Second, allowance: tenders cap how much each person can sell — commonly 10–25% of vested holdings — precisely so that nobody exits entirely. Third, taxes: proceeds are generally taxed as capital gains, but option holders who exercise in order to sell can trigger additional tax events, and the interaction between exercise cost, holding periods, and sale price is where most expensive surprises live. The one-line rule: model the taxes before the window closes, not after.

Why companies run them

Retention is the headline reason: equity that can periodically become money is a dramatically better retention tool than equity that cannot, and a scheduled program (see theSpaceX and Stripe case studies) lets employees plan lives around liquidity instead of resenting its absence. Tenders also let companies clean their cap tables — concentrating scattered small holdings into a few approved institutional buyers — and control the alternative: without a sanctioned channel, employee liquidity happens anyway, in forward contracts and gray-market deals the company neither sees nor prices.

Questions to ask before selling

What share class am I selling, and does the price reflect it? What portion of my vested equity may I sell, and does selling the maximum say anything internally? What are my total taxes on this sale, including any exercise I must do first? What is the company's trajectory since the price was set — is this print fresh or stale? And the portfolio question that outranks all of them: how much of my net worth remains in this one company after the sale? A tender is not a verdict on the company; it is a chance to fix a concentration problem on favorable terms. Most regret in either direction comes from treating it as something else. For the full mechanics of these transactions, seehow a secondary deal works.