Tender Offers and Secondary Sales: Getting Liquidity Before the IPO
With companies staying private longer, structured liquidity events have become a normal part of the startup employee experience. Here is how to think about them.
For much of Silicon Valley's history, the path to liquidity for startup employees ran through an IPO or an acquisition. That is no longer the whole story. As private companies delay public offerings, many now run periodic tender offers or permit secondary sales so that employees and early investors can convert some paper equity into cash. Understanding how these events work, and how to evaluate one, has become a core wealth planning skill for Bay Area professionals.
The market has grown
According to Carta's tender offer report for the first half of 2026, the platform administered 71 tender offers worth a combined $3 billion in the first six months of the year, the highest first-half totals in at least six years. Transaction count rose 34% year over year and value rose roughly 200%. Nearly 70% of these transactions occurred at companies at Series C or later, the median subscription rate reached about 93%, and for tenders occurring at least a year after a primary round, the median discount to the last round price was zero.
What a tender offer is
In a company-sponsored tender offer, the company or a group of investors offers to purchase shares from existing holders at a stated price during a defined window, usually 20 business days or more. The offer documents specify who is eligible, how many shares each person may sell (often a percentage of vested holdings), the price, and the closing timeline. Participation is voluntary.
A secondary sale, by contrast, is typically a negotiated transaction between an individual shareholder and a buyer, subject to the company's right of first refusal and transfer restrictions in the equity plan. Some companies prohibit secondary sales entirely; others permit them through approved platforms.
Tax treatment
Selling vested shares in a tender offer generally results in capital gain or loss measured from your cost basis. Shares held more than one year qualify for federal long-term rates; IRS Topic 409 explains the general rules. California taxes the gain as ordinary income regardless of holding period.
Some details deserve attention:
Options that must be exercised to participate. If you exercise options and immediately sell in the tender, the spread is generally ordinary compensation income, not capital gain, for both NSOs and ISOs (a same-day sale of ISO shares is a disqualifying disposition).
Prices above fair market value. If a tender price exceeds the company's 409A valuation, a portion of proceeds paid to employees may be treated as compensation rather than capital gain. The offer documents should address this.
QSBS. If your shares are qualified small business stock, selling before the holding period is met forfeits the exclusion for those shares. For stock acquired after July 4, 2025, partial exclusions begin at three years, as discussed in Holland & Knight's summary.
Withholding. Companies often do not withhold tax on capital gain proceeds. Estimated tax payments may be required.
Deciding how much to sell
There is no universal answer, but several questions help frame the decision:
How much of your net worth is tied to the company, including unvested equity and salary?
What would selling the maximum allowed do for your near-term goals: a home purchase, debt payoff, an emergency reserve, or funding retirement accounts?
What do you believe about the company's prospects, and how confident are you? Employees are often optimistic about their own company, which is natural but worth acknowledging.
What does the price imply relative to the last round and to public comparables?
Many people find a middle path, selling enough to secure the goals that matter most while retaining meaningful exposure to future upside. Taking some money off the table in a tender is not a vote of no confidence; it is risk management.
Documents to read carefully
Tender offer materials are lengthy but important. Pay attention to eligibility, per-holder limits, proration rules if the offer is oversubscribed, the treatment of options, any release or representation you are asked to sign, and the timing of payment. If you are an insider, confirm whether your participation requires pre-clearance under company policy.
Final thoughts
Liquidity before an IPO is a welcome development for employees who have taken real risk with their careers. Treating each tender as a planning opportunity rather than a windfall to be spent can meaningfully change long-term outcomes. This article is educational only and is not tax, legal, or investment advice; please consult qualified professionals about your specific situation.
Important Disclosures
Important Disclosures: Propulsion Capital Management is an investment adviser registered with the State of California Department of Financial Protection and Innovation. Registration does not imply a certain level of skill or training. This article is provided for general informational and educational purposes only and does not constitute investment, tax, legal, or accounting advice, nor an offer or solicitation to buy or sell any security or to adopt any particular investment strategy. The information is believed to be accurate as of the date of publication but is subject to change without notice; tax laws and regulations change frequently and their application depends on individual facts and circumstances. Nothing herein should be relied upon as a substitute for personalized advice from a qualified professional. Investing involves risk, including the possible loss of principal, and past performance is no guarantee of future results. Diversification does not ensure a profit or protect against loss. Any examples are hypothetical, are for illustrative purposes only, and do not reflect the experience of any client. Links to third-party websites are provided for convenience; Propulsion Capital Management does not endorse, and is not responsible for, the content of third-party sites. Propulsion Capital Management does not provide tax or legal advice; please consult your tax adviser or attorney regarding your specific situation.
