How Do I Run an Employee Tender Offer Without Getting It Wrong?

Your best engineer just received an offer from a competitor.

The signing bonus is attractive, and you know replacing them would be expensive. You cannot necessarily match the offer in cash, but there may be another way to give that employee a reason to stay: allow them to sell some of the vested equity they already own.

That is the thinking behind employee tender offers.

The approach has become increasingly visible among fast-growing AI companies. Wayve announced an $85 million employee tender offer at an $8.5 billion valuation, following similar moves by companies including Decagon, Linear, ElevenLabs, and Clay.

For founders, the retention strategy can be compelling. But a tender offer is not simply an employee benefit announcement. Once employees are selling securities for real money, the company needs to consider valuation, transfer restrictions, securities compliance, disclosures, and board approvals before announcing the terms.

What Is an Employee Tender Offer?

An employee tender offer is a company-organized transaction that allows employees to sell vested shares, usually to new or existing investors, without waiting for an IPO or traditional company exit.

For employees, it can provide meaningful liquidity while allowing them to remain with the company.

For founders, it can become a powerful retention tool.

But the transaction still involves securities.

That means it needs to be structured and documented accordingly.

Start With Your 409A Valuation

One of the first questions founders should address is pricing.

The tender price needs to be reconciled with the company’s current 409A valuation, which is the independent appraisal used to establish the fair market value of its common stock.

This matters because setting a tender price without considering the current 409A can create tax consequences for both the company and participating employees.

A price significantly above the current 409A may create unexpected tax treatment and could also require the company to obtain an updated 409A valuation that affects future option strike prices.

For that reason, founders should reconcile the valuation before announcing the tender price.

Bringing the company’s tax advisor into the process early can help identify potential problems before employees begin making decisions based on the proposed price.

Check Whether Employees Can Actually Sell

The fact that an employee owns vested shares does not necessarily mean they can freely transfer them.

Your charter, stockholder agreements, and other corporate documents may contain restrictions on secondary sales.

Here are the issues founders should review:

• Transfer restrictions may prevent certain sales.
• A Right of First Refusal (ROFR) may give the company or existing investors the opportunity to purchase shares first.
• Investor consent rights may need to be satisfied before the transaction can proceed.
• Certain employees may not currently qualify to participate under the company’s existing documents.

Discovering these restrictions after announcing the tender can create significant frustration.

Employees may believe they are eligible to sell, only to discover that their shares are subject to restrictions that were never addressed.

A Tender Offer Is a Securities Transaction

This distinction is important.

Founders may think of the tender as a retention initiative because the primary business objective is keeping valuable employees.

Legally, however, real money is changing hands for equity.

Securities laws apply regardless of how the company describes the transaction.

That means the company should approach the process with appropriate attention to:

• Eligibility rules.
• Transaction terms.
• Employee disclosures.
• Applicable securities requirements.
• Insider-trading restrictions.

Treating the tender like an ordinary HR announcement can create unnecessary exposure for the company and its officers.

Blackout Periods Matter

Employees participating in the tender may have access to material nonpublic information about the company.

That makes trading restrictions particularly important.

Insider-trading blackout windows is an issue founders need to consider before allowing employees to sell shares.

The company should therefore determine whether a blackout period applies and whether participating employees have received the information and disclosures they need before the transaction proceeds.

This is especially important for employees who work closely with financial results, strategic transactions, fundraising, product plans, or other sensitive company information.

Employees Need Proper Disclosures

Employees should have enough information to make an informed decision about whether to sell their shares.

Proper financial disclosures are a part of the tender process.

The company should not assume that because employees already work there, they automatically understand the financial and business risks associated with selling their equity.

The transaction should have clear written terms and eligibility requirements so employees understand what they are being offered and under what conditions.

Board Approval Should Happen Before the Announcement

A tender offer can affect the company’s capital structure, investors, employees, and existing shareholder rights.

It should therefore be treated as a formal corporate transaction.

Confirm that the board has formally approved the structure and timeline before the tender is announced.

This is particularly important when the company’s existing agreements give investors consent rights or when transfer restrictions could affect participation.

Getting the appropriate approvals at the beginning is much easier than trying to correct the process after employees have already been told what they can sell.

Common Founder Mistakes

• Setting the tender price before reconciling the 409A: Using the last funding round or an aspirational valuation without reconciling the current 409A can create tax issues and potentially force changes to future option strike prices.
• Opening the tender before checking transfer restrictions: Charter provisions, ROFR rights, and investor consent requirements may prevent certain employees from participating.
• Treating the tender like an HR announcement: A transaction involving real money and company securities requires appropriate disclosures, eligibility rules, and attention to securities compliance.
• Skipping formal approvals to move faster: Board approval and any required investor consent should be addressed before employees are invited to participate.

10-Minute Tender Offer Self Check

• Is the proposed tender price reconciled against a current 409A valuation?
• Have I confirmed which employees are eligible to sell?
• Do the company’s charter and stockholder agreements permit the proposed transactions?
• Have I identified any ROFR provisions?
• Do investors have consent rights that could be triggered?
• Have I checked whether an insider-trading blackout period applies?
• Have appropriate disclosures and written transaction terms been prepared?
• Has the board formally approved the structure and timeline?

If you cannot answer yes to all of these, you risk a tax mismatch or a securities problem right when you need your best people to stay.

Bottom Line

An employee tender offer can be an effective retention strategy, particularly when employees hold meaningful vested equity but need liquidity before an IPO or acquisition. But the speed and simplicity of the concept can be misleading. Valuation, transfer restrictions, investor rights, securities compliance, disclosures, and board approval all need to be addressed before the offer is announced.

The founders who handle these transactions well treat them as real securities transactions from the beginning, rather than as another employee benefits initiative.

Is Your Company Actually Ready to Run a Tender Offer?

Join our upcoming Product Launch Master Class, where we’ll walk through the legal risks founders can overlook when launching new initiatives, explain which agreements and policies may need attention, and help you prepare your company for customers, investors, and future growth.

Register now: https://primumlaw.com/product-launch-master-class/