Tender Offer
Definition
A company-organized event allowing employees (and sometimes former employees) to sell some of their vested shares to an outside buyer — typically a secondary fund or new investor — before an IPO. Tender offers provide liquidity in otherwise illiquid private company stock.
Real-World Example
After 5 years at a late-stage startup, you have 30,000 vested shares. The company organizes a tender offer where a secondary fund will buy shares at $40/share. You sell 10,000 shares ($400,000, minus taxes) and keep 20,000 for potential IPO upside.
Common Mistake
Selling too much or too little. Selling everything in a tender offer means you lose all future upside. Selling nothing means you continue bearing all the risk of a private company with no liquidity. A balanced approach — selling enough to secure some guaranteed return while keeping upside — is usually optimal.
Why It Matters
Tender offers are the primary way startup employees can get real money for their equity before an IPO. They can be a once-in-a-career opportunity to derisk your compensation. Understanding the tax implications and pricing is essential.
Related Terms
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