Can My Employees Sell Shares Before the IPO? What I Need to Know About Tender Offers.
Your employees have been waiting years for liquidity. The equity looks great on paper. But equity on paper does not provide immediate liquidity. Now the company is talking about a tender offer, and nobody is quite sure what it actually means or what they should do.
This is a structured financial event with meaningful legal and tax consequences.
What a Tender Offer at a Private Startup Actually Is
The Basic Structure
A tender offer is a company-organized event where the company or an outside investor offers to buy shares from employees, founders, and early investors at a set price, before any IPO or acquisition. It is one of the primary ways employees get liquidity at private companies.
Startups are staying private longer. The average time from founding to IPO now exceeds 10 years, as compared to 4 years in 1990s.
Who Gets to Participate
Eligibility varies deal by deal. A tender offer can be limited to:
- current employees only
- both current and former employees
- advisors or early investors
- founders, depending on structure
The offer window is often around 20 business days, particularly for issuer tender offers subject to SEC rules. Read the eligibility terms carefully before assuming you or your team qualifies.
The Tax Implications Are Not Simple
Tax treatment depends on what kind of equity is being sold:
- ISOs sold before meeting the required holding period (a disqualifying disposition) are typically taxed partly as ordinary income and potentially partly as capital gain
- NSOs are generally taxed as ordinary income on the spread between the strike price and fair market value at exercise, with any additional gain taxed separately
- Exercising ISOs prior to a tender offer can trigger Alternative Minimum Tax (AMT) exposure, depending on the spread at exercise
Employees often learn about these tax consequences after they have already agreed to sell.
Running a Tender Offer Is Not Simple Either
A tender offer is a legal and regulatory event. Companies must comply with SEC Regulation 14E, obtain board approval, and structure the transaction properly. It is not an informal internal buyback. Getting the structure wrong creates legal exposure for the company.
Common Founder Mistakes
Mistake #1: Assuming the Tender Offer Price Is Fair
Founders and employees often accept the tender price without comparing it to available data. Before deciding to participate, check:
- the most recent 409A valuation (the IRS-approved fair market value of common stock)
- any secondary market data for comparable transactions
- the implied valuation relative to the last preferred round
In 2026, employees at Anthropic passed on a tender offer at a $350 billion implied valuation, betting the IPO price would be higher. The tender price should be treated as a starting point, not necessarily a final answer.
Mistake #2: Exercising ISOs to Participate Without Modeling the Tax Hit
Some employees exercise ISO options specifically to sell shares in a tender offer. The problem is that exercising and immediately selling ISOs can result in ordinary income tax on part or all of the spread, depending on the circumstances. This can push taxable income into AMT territory. The liquidity event looks smaller after taxes than it looked before.
Mistake #3: Not Consulting a Tax Advisor Before Participating
The decision to participate in a tender offer is a tax decision as much as a financial one. Many employees skip the tax advisor and discover the true net proceeds only after the sale closes. The tax bill lands in April. The decision cannot be undone.
10-Minute Self-Check
☐ Do I know who is eligible to participate in this tender offer?
☐ Have I compared the tender price to the most recent 409A valuation?
☐ Do I know whether my options are ISOs or NSOs, and what that means for taxes?
☐ Have I modeled the tax consequences of selling before consulting a tax advisor?
☐ Do I understand the acceptance window and what happens if I miss it?
☐ Has the company confirmed the offer complies with SEC Regulation 14E?
☐ Have I decided whether the tender price reflects fair value, or whether holding is the better move?
If any of those answers is unclear, get clarity before the acceptance window closes.
Bottom Line
Tender offers give employees real liquidity, but the terms matter more than the headline price. Tax consequences alone can materially reduce what initially appears to be a strong payout. Evaluate the offer with full information, not just the dollar figure on the term sheet.
Should My Employees Participate in This Tender Offer?
Schedule a free 30-minute call with our team.
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Sources Used
- ESOFund, “Tender Offers at Startups: An Employee Guide” — ESOFund, https://www.esofund.com/blog/understanding-tender-offers-at-startups
- PitchBook, “Employees at Mega-IPO Candidates Are Opting Out of Tender Offers” — PitchBook, https://pitchbook.com/news/articles/employees-at-mega-ipo-candidates-are-opting-out-of-tender-offers-in-a-champagne-problem
- Ramp, “Secondary Transactions: What They Are and How They Work” — Ramp, https://ramp.com/blog/founders-guide-to-navigating-secondary-transactions