Learn what employee tender offers are, whether you should sell, and how to handle the taxes.

While the post-2021 IPO slump didn’t last forever, its ripple effects are present even today.

The halt in IPOs led to an increase in valuable, private tech companies flushed with cash and interest from investors. Though the trend of companies delaying their IPOs to accumulate value was also a pre-2021 trend, the IPO slowdown exacerbated delays.

Though IPO delays were bad news for the stock market, they put startup employees in a good position, leaving them with dramatic growth in their stock’s pre-IPO value and an eagerness to cash in on their hard work.

While fewer private companies are going public, more are opting for tender offers. This once hush-hush bid, which now garners publicity, grants employees of a given company the chance to sell their shares while the company remains private.

If your company has announced a tender offer — or if you have a hunch they might — read on to learn more about what private company tender offers are, how to handle this exit opportunity, and its tax implications.

What is a tender offer?

Tender offers used to be a way for late-stage startups to raise funds by selling company stock to a third party. They served as an additional fundraising round, where companies raised new venture capital while employees and individual shareholders got to sell into that round.

Now, many companies that establish tender offers don’t do so to raise new capital. They instead aim to create a secondary market through which employees and shareholders can sell shares to interested investors, some of whom have previously invested in the company.

So, what exactly is a tender offer?

A tender offer is when a private, pre-IPO company creates a secondary market for individual shareholders — usually its employees — to be able to tender (i.e sell) their shares ahead of an IPO.

Tender offers are referred to as secondary market transactions because when an initial purchaser of a stock sells that security to another investor, the security transaction moves into a secondary market.

Tender offer: A win-win-win

Unlike the severe IPO slump we saw after 2021, tender offers remarkably haven’t missed a beat. This doesn’t quite come as a shock to me because private company tender offers create an undoubtable win for all parties involved.

Let me explain:

How the company wins: Tender offers allow companies to provide liquidity to employees, avoid equity grant expiration, and/or raise a lot of funds without going public.

How the third party wins: The third party that shareholders sell to typically agrees to pay a certain amount for a certain percentage of the company, which is a win for them. They also tend to have high interest in segments like AI, and desire access to shares or an increase in their existing holdings.

How the employees win: Theoretically, the above could all happen without letting employees sell their shares, but it can be frustrating as an employee to see your stock value appreciate without being able to cash out because the company is avoiding an IPO. Giving employees the ability to sell some or all of their shares for cash creates a win for them as well.

Considering the uptick in tender offers, even if your company hasn’t announced one yet, it can’t hurt to start running numbers should they announce one in the near future.

That being said, how can you gauge whether you have a looming tender offer to look forward to?

Many late-stage companies do multiple tender offers before their IPO. On their first tender offer, companies usually limit the number of employees who can participate, so if your company did one last year and you didn’t make the participation list, they may do other ones down the road with looser restrictions.

One of the easiest ways to identify if you should expect a tender offer is to look at your company’s history of doing them. You can almost count on another tender offer happening before your IPO if your company:

  • Has had a tender offer before
  • Is still doing well, and
  • Has sufficient investor demand for company shares

In which case, build the prospect of a tender offer into your plan. (Remember, planning goes for any anticipatory event, whether it be a looming tender offer, IPO, or a trading window.)

Your tender offer: To sell or not to sell?

Honestly, there’s no easy answer to whether you should sell in your tender offer. It all boils down to your personal finances and the price of the offer.

But the way we see it, you have two choices to consider:

  • Sell as much as you can
  • Sell nothing at all

Realistically, these options sit at opposite ends of your choice spectrum and odds are you’ll end up doing something in the middle. But the point of weighing your most extreme options is to simplify what seems like a complex, difficult decision.

Here’s our reasoning for why you should do each of these polar opposite choices:

When to sell as much as possible

In most tender offers, there’s a limit on how much equity you’re allowed to sell.

You probably won’t be allowed to cash in on all of your stock, so selling as much as you’re allowed to at this point can be the right decision for you.


Let’s rewind to the day you started working at your company. The equity they granted you was somewhat of a lottery ticket with an infinite number of possible outcomes, including:

  • The company could have completely fallen apart, leaving you with worthless equity, or
  • The company could have become the most successful in the world, granting you millionaire status

Considering your company is at the point of raising funds through a private company tender offer, they still have yet to IPO, leaving the two possibilities above (and everything in between) still very much on the table.

If you sell as much as you can now, you eliminate the downside of your gamble (the possibility of your stock being worthless one day). Exchanging your lottery ticket for cash of any amount is a successful outcome in my book.

It’s also a good idea to sell if there’s something meaningful you can immediately do with the lump sum, like buying a house.

I’ll show my cards here and say that in general, if a client tells me they don’t have strong thoughts about their tender offer and don’t know what to do, I advise them to sell as much equity as they can.

The first reason for my advice is that the tender offer already limits how much of your equity you can sell (oftentimes only 10-20% of your vested equity). So in the grand scheme of things, even if you sell as much as you can, it’s only a small portion of the total equity you’re granted. The second reason I encourage clients to sell as much as they can is because of the current trend of delayed IPOs, which creates increasingly more privately held tech companies whose sky-high pre-IPO valuations and stock prices are hard to sustain in a public market. These companies usually present employees with great tender offer prices that could make selling as much as possible a worthwhile option.

When to hold & sell nothing

If you fully believe in your company and think your stock will be highly valuable one day, don’t sell.

Remember The Marshmallow Experiment on delayed gratification?

If you need a refresher, the experiment brought children, one by one, into a room with a researcher and a marshmallow. The researcher told each child they would leave the room for 15 minutes, and if they came back to find the first marshmallow was still there, the child would get a second marshmallow as a reward. If the child ate the first marshmallow by the time the researcher returned, which they were allowed to do, they wouldn’t receive a second marshmallow.

This study followed the children for more than 40 years after the experiment and found that the kids who waited the full 15 minutes for their reward went on to become more successful than those who gobbled up the marshmallow before the researcher returned.

All this to say that, sure, you could get a lot of cash if you sold in your tender offer now. But, you may get double (or more) that amount later if you wait.

Your decision should come down to your individual financial situation. If you don’t need the cash and wouldn’t have an immediate use for it — perhaps you’ve already purchased a house and are well on your way to financial independence as it stands — you’re better off holding onto your equity for now. Your risk tolerance and risk capacity are also important considerations when deciding whether holding onto your stock is the right choice for you.

Remember, you’re not limited to either selling as much as you can or selling nothing at all. In most cases, you can opt for a combination of the two. You can take a hybrid approach by determining a percentage of what you’re allowed to sell or a total dollar amount you want to achieve in the tender offer.

With the flexibility to choose the best course of action for yourself comes the downside of making a difficult decision. That’s why clients turn to partners like KB Financial Advisors to walk them through the right strategy for their unique financial plan.

How to sell in a tender offer (if you choose to)

If you decide you want to participate in your tender offer, there are four important things to do before you sell:

1. Get organized

Gather all of your grant agreements, stock option grants, restricted stock unit (RSU) grants, and shareholdings. Organize all of your documents and the details of your employee equity. You have to know what you’re working with and you must be able to identify the different tax treatments of everything you’ve been granted.

2. Read your offer documents

Once you’ve gathered all the documents your company gave you, read them. Selling involves entering into a legal contract, so you’ll want to know exactly what you’re getting yourself into before you do it. Pay close attention to the details, as there can be fine print that outlines how certain choices you make could affect your equity, even if you don’t sell everything you’ve been granted. Remember, your company employs a team of lawyers to protect them in these financial situations. You need to protect yourself too.

3. Decide what to sell

What you’re allowed to sell may vary depending on the terms of the tender offer. For example, some companies count restricted stock units as a part of your vested equity, while others don’t.

Beyond complying with your private company tender offer’s terms, you should also make a tax-informed decision, though taxes shouldn’t influence whether you participate in the tender offer or how much you sell.

4. Update your tax projections

Once you decide whether you want to sell — and if you do, how much to sell — use your tax information to decide which equity will produce the most advantageous tax outcome for you once you sell it. One way we help clients do this is by updating their tax projections.

When you sell your stock options, it’s important to think about the additional income you receive. Some of it may be considered regular income while another portion is considered a long-term investment — each of which may be taxed differently. Do a rough estimate of your tax projections before you sell, and then do it again afterward for a more accurate estimate.

When tax time comes, you’ll most likely owe more money than what’s withheld at the sale. Go ahead and expect for this to be the case. Whether you sell your equity through a tender offer, IPO, or a trading window, it’s pretty standard to owe more money than what was withheld at the time of your transaction.

Once you know the excess tax you owe, make an estimated tax payment using the cash you receive from selling your shares. This gets your big tax payment out of the way and allows you to freely handle your remaining cash without worrying about a hefty tax bill in April. But, if you want to be especially cautious, you can make an estimated tax payment and set aside some cash in savings just in case there’s an unexpected surprise on your next tax bill.

How are tender offers taxed?

The type of equity you sell determines the tender offer tax treatment you receive.

There are three main types of equity at play here:

  • Stock options
  • Restricted stock units
  • Shares

Stock options

The two types of stock options you may deal with include non-qualified stock options (NSOs) and incentive stock options (ISOs).

Non-qualified stock options: If you sell NSOs in a private company tender offer, it’ll be taxed as ordinary income. Your tax payment will be based on your bargain element, which is the difference between the tender offer price you sell at and the exercise price you pay. Non-qualified stock options also usually have income tax withholding and are taxed as ordinary income. You’ll pay that tax through income tax withholdings in the tender offer, but if the amount withheld doesn’t suffice, you may need to pay the rest of your taxes when you file your tax return.

Incentive stock options: If you exercise and sell ISOs, the tender offer tax treatment will be that of a disqualifying disposition. That means when you exercise and sell ISOs, you disqualify them and they’ll be treated the same as non-qualified stock options, such that the bargain element will be taxed as ordinary income. Technically, withholdings aren’t required on ISOs, so find out how the taxes are handled. Is a portion of it being paid now through withholding, or will you need to pay all the taxes you owe when you file your tax return?

Restricted stock units

A notable part about Stripe’s famous 2023 tender offer was that the fintech’s restricted stock unit grants were approaching their 10-year expiration date when it all went down. Stripe initiated the tender offer to allow current and former employees to gain liquidity before the RSUs expired.

Depending on your situation, restricted stock units may or may not be eligible to sell in a tender offer. That often depends on whether or not your tender offer private company wants to trigger the double-trigger in your RSUs and make all of them taxable because of the tender offer. But if the RSUs are eligible to sell in the tender offer, or if they become taxable because of the tender offer, 100% of their value will be taxed as ordinary income and will have income tax withholding.


Shares may date all the way back to the founding of your company. If you’re a founder or an early employee, you could be dealing with your company’s first batch of shares.

Perhaps the shares are non-qualified stock options with an early exercise provision that you exercised very early on and have since held on to. They could also be shares from incentive stock options that you’ve exercised and now hold. If you’re selling shares in a tender offer, the holding period — or the amount of time you’ve held onto the shares — determines their tax treatment.

There are three potential tender offer tax treatments you could face with shares:

Qualified small business stock (QSBS): Though having QSBS is uncommon, having shares that pass as qualified small business stock is not impossible. Ensure you work with a tax professional who’s familiar with QSBS because if your shares are qualified small business stock, there’s a possibility you won’t owe any federal taxes on their sale.

Long-term capital gains (LTCG): Long-term capital gains applies to shares you’ve held for at least a year and a day. With this type of tax treatment, you get a lower LTCG tax rate than your ordinary income tax rate, as far as federal taxes are concerned.

Short-term capital gains (STCG): Shares you’ve held for less than a year are taxed as short-term capital gains at a tax rate that’s identical to your ordinary income tax rate.

Beware of tax treatment blunders

Don’t assume you’re above making a tax oversight — they can happen to anyone, especially as you deal with complexities like tender offer tax treatment.

The first thing to watch out for is estimated tax payments, which are especially important to nail if either of these circumstances apply to you:

  • Your tender offer occurs early in the year
  • None of the things you sell will trigger any additional income tax withholding

As of the writing of this post, IRS interest rates for tardy estimated tax payments are at a high seven or eight percent, making the mishandling of your estimated tax payments especially costly. Avoid this expensive blunder by acting immediately after your tender offer to identify whether you need to make estimated tax payments, and if you do, figure out the amount you owe, along with when you need to make the payments.

The second tax treatment concern to be vigilant of is preparing your tax return. Your tender offer may be reported on multiple documents, including ones you’ve never received before. For instance, some of your income may appear on both Form W-2 and Form 1099-B. This is where even a slight misstep can cause you to pay double the taxes you actually owe — potentially costing you tens or even hundreds of thousands of dollars. Working with an experienced tax professional is the best way to eliminate your risk of double taxation.

Don’t forget to use your cash

Once you receive your cash from the deal, don’t let it sit idle and collect dust in your bank account. Use it!

For instance, if you want to buy a house, use your cash to buy a house.

Make your new money work for you so it can contribute to your overall wealth plan and financial health.

If you don’t have a specific financial need for the cash, invest it so it can grow. Read our guide on how to invest your cash after selling your stock options.

Exercise more options

After you sell equity in a tender offer, exercising some ISOs can help you reduce your likelihood of paying the alternative minimum tax.

It works because you receive additional income through selling in a tender offer, which means you can usually increase the number of ISOs you exercise before triggering the alternative minimum tax. That’s the gist of it, but there are other factors to consider too.

Tender offers: Your pre-IPO exit plan

Tender offers are perfect for those itching to move on from their current companies, whether it be to retire or take on another opportunity. These opportunities give you the freedom of an early way out and an alternative to being tied to a company, waiting for the shares you worked hard for to finally vest into something you can liquidate.

As wonderful as private company tender offers are, planning and executing them is not a walk in the park.

Navigating tender offers can be a minefield of financial projections, taxes, and forecasting, especially if you’re not a financial professional who crunches these numbers daily.

If you suspect your company will announce a tender offer soon — or if they’ve already announced one and you’re wondering what to do — book a discovery call with one of our experts today.