A founder’s guide to the tender offer

What is a tender offer?

A tender offer is a formal, company-sponsored secondary transaction allowing shareholders to sell a certain amount of their company stock at a predetermined price per share. It is a formal offer to purchase some or all of the shares in a corporation from existing stockholders, and is typically structured as an active and widespread solicitation by the company or a third party to buy a substantial percentage of the company’s securities. The buyer can be an individual investor, a group of investors, or the issuing company (in what’s known as a share buyback).

For public companies, the price per share is usually higher than the current market value to incentivize shareholders to sell. For private company stock, the offer price is typically determined by the company and any investors participating in the transaction. In some cases, the offer price may be equal to the company’s most recent 409A valuation.

Given the nature of these transactions, tender offers are often subject to internal agreements, government regulations, and other applicable securities laws.

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How tender offers work for private companies

Since private company shares are not available on a public market, shareholders such as founders, employees, former employees, and early investors have limited opportunities to sell their shares. Private companies today are staying private for longer, meaning an exit event may be years down the line.

By allowing companies to provide a structured liquidity event for shareholders, tender offers have become a popular way to satisfy early investors and reward longtime employees. These transactions benefit multiple participants:

• Sellers can monetize their equity and realize returns without having to wait for the company to go public or get acquired.

• If the buyer is an investor, they receive equity in a company they want to invest in.

• If the buyer is the company, it can reduce share dilution while rewarding existing shareholders with liquidity.

Types of tender offers for private companies

There are two primary types of company-initiated tender offers: share buybacks and third-party tender offers.

What is a share buyback?

The primary goal of a share buyback is to provide employees and early investors with liquidity. Buybacks also have the advantage of being less administratively complex than a third-party tender offer. During a share buyback, you can use the cash on your balance sheet to repurchase the outstanding shares, or can use capital raised during a primary fundraise. The latter option is more expensive because it requires issuing new preferred stock to buy back existing common shares.

What is a third-party tender offer?

In a third-party tender offer, the investors have typically already engaged with the company and expressed their interest to purchase shares. Often, executives choose to hold a third-party tender offer if they know, based on investor demand, that an upcoming primary round will be oversubscribed. In these cases, the tender offer can allow investors to buy additional shares from existing shareholders.

Similar to a primary fundraise, companies conducting a third-party tender will typically identify a lead investor and then fill out the buyer group. As companies build out this pool of potential investors, they should determine whether the lead or any other investor in the group already has a substantial ownership position in the company, as it may impact some tax considerations.

How does a tender offer work?

While the process is governed by specific rules, a tender offer is a straightforward and manageable event when managed using dedicated liquidity solutions. The details can vary, but in general, the tender offer process looks something like this:

1. A buyer (or multiple investors) offers to purchase a defined quantity of shares at a set price

2. The company confirms the offer size and price and gets preliminary approval from its board of directors (BoD)

3. The company works with its legal counsel and the buyers to prepare the disclosures and transaction documents

4. A 20-business-day window opens for sellers to evaluate the transaction details, decide whether to participate, and if so, how many eligible shares they want to sell

5. Once the offer window has closed, allocations are finalized and sellers receive proceeds for their tendered shares

Under U.S. Securities and Exchange Commission (SEC) rules and the Securities Exchange Act of 1934, tender offers must remain open for at least 20 business days to allow sellers to ask questions, examine the documents, consult an advisor, and decide whether to participate. To help interested sellers make an informed decision, the company will typically provide:

• An offer to purchase

• A letter of transmittal

• Financial statements

• A descriptive list of risk factors and other disclosures

Key participants and their roles

A tender offer involves several key parties, each with a distinct role. Understanding who is involved helps you navigate the ecosystem of the transaction.

• The company: As the founder or leader, you are the one who initiates and structures the event. You work with your legal and financial partners to set the rules, prepare the documents, and communicate the offer to your shareholders.

• The buyer: The buyer is the entity purchasing the shares. This can be the company itself conducting a share buyback, or it can be one or more third-party investors who want to purchase shares from existing holders.

• The sellers: These are the shareholders who are eligible to participate in the offer. This group typically includes current and former employees, as well as early investors who hold vested equity in the company.

• The agent: This is the platform and partner, like Carta, that executes the transaction. The agent manages compliance, handles shareholder communications, facilitates the movement of money, and updates the cap table to reflect the new ownership structure.

Tender offer rules and regulations

In addition to SEC rules, companies will often set qualifying criteria for participating in a tender offer—such as a vesting cutoff date (also known as a record date), eligible share classes for sale, and maximum sale limits based on a shareholder’s relationship type. This helps to ensure alignment with company or buyer goals for the liquidity event.

Although it’s less common, some mature companies may only allow participation for shareholders who have exercised their stock options and held the resulting stock for at least six months.

Tender offer example

Tender offers can go several different ways. Here’s an example of how a tender offer could play out for a fictional company, Meetly, and a fictional investor, Krakatoa Ventures:

1. Krakatoa Ventures offers to buy two million shares of Meetly’s common stock

2. Meetly’s latest preferred stock price is $50 and the fair market value (FMV) of the company’s common stock before the tender offer is $15

3. Krakatoa Ventures offers $40 per share, which Meetly’s BoD approves

4. The offer lasts for 20 business days

5. When the deal is completed, employees selling shares in the tender offer will receive their proceeds

Free tender offer templates

Free document templates for those preparing for a tender offer.

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How to prepare your company for a tender offer

A smooth and successful tender offer depends on the strategic decisions you make upfront. Founders and executives have several steps to take when structuring a tender offer for their company. Approaching this process with a clear plan will ensure that the transaction aligns with your company’s goals and minimizes potential complications. Think of this as your founder’s checklist for getting ready.

1. Decide who will buy the shares

One of the first decisions is to determine the source of funds for the transaction. There are two primary structures for a tender offering: a share buyback or a third-party tender offer.

1. Corporate repurchases/share buybacks: In a share buyback, the company repurchases shares from its shareholders—including employees, investors, and/or former employees.

2. Third-party tender offers: In a third-party tender offer, the company allows investors to purchase shares from existing shareholders.

2. Set a transaction price

The offer price is a key component of the tender offer. If the transaction immediately follows a recent funding round, the price is often based on the price per share from that round; in fact, tender offer prices matched the company’s most recent preferred stock financing in 60% of deals in 2024. This provides a clear and defensible benchmark for the value of the shares.

• In a share buyback, the company sets the price it’s willing to pay for shares, and shareholders decide how many of their shares they’ll sell based on that price. Usually, this means pricing the shares at or near the share price of a recent fundraise.

• In a third-party tender offer, companies set a transaction price based on investor demand before the offering period begins.

The timing of a tender offer can affect the price of its stock. With companies looking to meet surplus investor demand after a primary round, we often see tender offers priced in line with the last primary, or at a discount. The discount usually results from the fact that investors during a primary fundraise are buying preferred shares, while shares traded during a tender offer are often common shares. Preferred stockholders receive priority in a liquidation event compared to common stockholders.

For a third-party tender offer that doesn’t soon follow a primary capital raise, companies will need to negotiate a price with the investors, similar to how a company might receive term sheets during a primary financing.

3. Decide who will be able to sell their shares: Establish transaction size and shareholder eligibility

In addition to pricing, eligibility parameters will set limits on the size of the transaction. For example, will this transaction be for current employees only, or will it include former employees? Will early investors be included? Eligibility will impact things like taxation for employees, as well as your company’s next 409A valuation.

Some shareholder types, like founders, tend to hold far more shares than other participants. When determining eligibility across your company’s shareholder subgroups, you’ll want to balance the number of shares that larger sellers are permitted to sell against the number of shares that investors have indicated they’d like to buy.

4. Consider the tax impact to employees

The tax implications for participants in a tender offer (including employees) vary depending on the parameters of each transaction. Due to the complexities involved in structuring a tender offer and the related tax treatment, it’s important to discuss these considerations with your tax advisor, legal counsel, and auditors before you run the tender offer. 

5. Understand the impact on your 409A valuation 

A common misconception among founders is that holding a secondary transaction will cause a company’s 409A valuation to rise sharply and adversely impact future option strike prices. From Carta’s years of experience in the 409A and secondary liquidity space, we’ve learned that this isn’t necessarily true. Like some other secondary events, a tender offer will likely cause a 409A valuation to rise. But some companies find that it’s not a meaningful increase if they have put the proper controls in place around relevant factors, like the number of permitted participants.

→ Learn how Carta helps founders and executive teams understand how a secondary transaction could affect their company's 409A valuation.

Why run a tender offer?

As companies stay private for longer, the time between funding rounds has stretched to become the longest intervals this decade. In the second quarter of 2024, the median startup that raised a Series A round on Carta waited 774 days between primary funding rounds, and the median startup that raised a Series C waited 790 days after its previous round. With these extended timelines, providing liquidity for private company equity is no longer just a future exit plan—it has become an essential strategic tool for growth and retention. Running a tender offer moves beyond the "what" and addresses the "why" by speaking directly to your goals and challenges as a founder. It allows you to proactively manage your company's ownership structure and stakeholder relationships.

There are several strategic benefits to conducting a private company tender offer:

• Reward and retain your team: A tender offer is a powerful way to let long-time employees turn their hard-earned equity compensation into cash for major life events. As companies stay private longer, employees holding vested shares are increasingly eager to liquidate some of their equity. Data from the first half of 2025 shows that the median participation rate was 46.4% at seed through Series B and 65.6% at Series C+, a gap of nearly 20 percentage points.

• Provide returns to early investors: Your first backers took a significant risk on your vision, and as their own funds mature, they face increasing pressure to return money to their limited partners. A tender offer gives them a chance to realize a return on their investment, which strengthens your relationship with them and builds your reputation within the investor community.

• Clean up your cap table: Over time, your cap table can become crowded with small, inactive shareholders. A tender offer allows you to consolidate ownership by bringing on new strategic investors or having the company buy back shares, simplifying your cap table ahead of future financing rounds or exit.

• Satisfy investor demand: It's a good problem to have when fundraising is oversubscribed, meaning more investors want to buy shares than you plan to sell. A tender offer lets these interested investors purchase shares from existing shareholders, satisfying their demand without the company having to issue new stock and cause further dilution for everyone.

Employees: Should you participate in a tender offer?

Receiving stock options or restricted stock units (RSU) from your company is a great compensation perk. But most private stock awards are illiquid, meaning you can’t typically sell the stock you’ve earned for cash unless your company experiences an exit event—like an initial public offering (IPO) or a merger or acquisition (M&A). A tender offer is a way to access liquidity before an exit.

Ultimately, participating in a tender offer is a personal decision. Here are a few tips to help you decide:

• Go to the info sessions, ask questions, and gather important details, such as transaction parameters and key deadlines

• Read all the disclosure documents provided by your company to help make an informed decision

• Talk to a financial and/or tax advisor who can help you figure out if it’s a good idea to participate in the context of your current financial situation and goals

Also, ask yourself the following questions:

• What are my financial goals? Do I need the money now, or can I wait?

• How’s my company doing? Do I think the value of my stock will continue to rise?

• When do I think the next liquidity event will be?

• How much will it cost to exercise my remaining stock options?

• Do I think the price the buyer is offering is fair?

Pros and cons of participating in a tender offer

What happens if you don’t accept a tender offer?

You don’t have to participate in a tender offer. If you’d rather keep your shares, no action is needed.

How are tender offers taxed for employees?

Depending on the structure and parameters of the transaction, each seller’s proceeds may be taxed as ordinary income and/or capital gains. The tax consequences of participating in a tender offer will be summarized in your “offer to purchase” document, which also details the terms of the offer.

If you want to optimize your tax withholding strategy, lowering your adjusted gross income by maxing out your 401(k) and increasing charitable donations may help. You should also consult with a tax professional before participating in a secondary transaction.

→ Get more information on how employee stock options are taxed

How Carta simplifies tender offers

Carta transforms the high-risk, manual process of a tender offer into a professional, streamlined experience that builds confidence for everyone involved. Our integrated platform offers liquidity solutions designed to handle the complexities of secondary transactions so you can focus on your company's goals.

• Model with confidence: Instead of wrestling with complex spreadsheet formulas, use Carta's Tender Offer Seller Model to easily run scenarios on pricing and eligibility. This helps you structure the deal to meet your goals before you launch.

• Automate the execution: Let the platform handle the entire workflow, from sending invitations and collecting legal documents to calculating withholdings, and coordinating with the buyer to disburse funds. Because tender offers on Carta are directly integrated with the underlying cap table, there’s no need for post-close reconciliation, which saves paralegal time and reduces the risk of human error.

• Maintain a single source of truth: Because your tender offer is connected directly to your cap table, all ownership records are updated automatically. This keeps you audit-ready and investor-ready without any painful, manual reconciliation.

For founders looking to manage liquidity events alongside fundraising, request a demo to learn how Carta can help you efficiently track and close your next priced round.

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Frequently asked questions about tender offers

Is a tender offer a good sign for the company?

For a mature private company preparing for an IPO, a tender offer is typically a strong, positive signal that can serve as a bridge to a future liquidity event. This pattern mirrors historical market cycles; after the 2008 financial crisis, for example, an increase in tender offers helped prime the market for an upswing in public listings. Based on this precedent, some legal experts see a direct correlation between tenders and IPOs, suggesting the current rise in tender activity may signal an increase in public offerings within the next 12–18 months.

What is the difference between a tender offer and an IPO?

A tender offer is a controlled, private liquidity event for a limited group of existing shareholders. In contrast, an IPO is a public sale of stock that creates ongoing liquidity for all shareholders on a public exchange.

What happens if a tender offer is oversubscribed?

It’s not uncommon for shareholders to offer to sell more shares than the buyer intends to purchase—a situation known as an oversubscribed tender offer. In fact, for later-stage companies in 2024, the median subscription rate for oversubscribed tender offers was 100.3%. When this happens, the sale is typically handled on a pro-rata basis. This means each participating seller will sell a reduced, proportional amount of the shares they tendered.

What is the difference between participation rate and subscription rate?

The participation rate is the percentage of eligible people who choose to sell shares in the offer. The subscription rate is the percentage of the total available shares in the offer that are actually sold.

As an employee, should I participate in a tender offer?

Participating in a tender offer is a personal financial decision that may impact your alternative minimum tax liability. You should carefully review all company-provided documents and consult a personal financial advisor to understand if selling your shares aligns with your individual goals.

Is a tender offer the same as a share buyback?

A share buyback is one type of tender offer where the company itself is the buyer. However, a tender offer can also be funded by third-party investors who want to purchase shares from existing shareholders.