Company

What is a tender offer? How startup employees sell shares

A tender offer at a private company is a one-time, time-limited invitation for shareholders, usually employees and early investors, to sell some of their existing shares at a set price. The buyer is either the company itself (a buyback) or outside investors, and no new shares are created. It gives startup staff a way to turn paper equity into cash before an IPO or acquisition.

The term comes from public-market law, where a tender offer is a public bid to buy shares from holders. In startups it describes the same mechanics applied to a small, invited group of holders. This guide covers how the process works, who can sell, which securities rules touch it, and the tax questions employees should raise with an adviser. It is general information, not legal, tax or investment advice.

How a startup tender offer works

Most programs follow the same sequence:

1. The company decides to run one. The board approves the size, the price per share and the rules, often around a funding round.
2. A buyer is lined up. Either the company uses its own cash, or new or existing investors agree to buy the shares being sold.
3. Eligible holders get an offer document. It states the price, the window, the cap on how much each person may sell and how to participate.
4. Holders choose how much to tender. Participation is voluntary. Nobody has to sell.
5. The offer closes and shares are settled. If more shares are tendered than the buyer wants, sellers are usually scaled back.

The price is often tied to the most recent funding round, but that is a company decision, not a rule.

Company buyback vs third-party tender

The two structures differ mainly in who pays.

• Company buyback (issuer tender). The startup repurchases shares with its own cash. The shares are retired or held as treasury stock, so the remaining holders each own a slightly larger share of the company. It spends cash that could fund hiring or compute.
• Third-party tender. Outside investors buy the shares. The company’s cash is untouched, and the buyers become holders of existing stock, often alongside a primary financing round.

Some deals mix both. The company can also offer to buy shares from some holders while investors take the rest.

A recent example: ElevenLabs, September 2026

On September 30, 2026, ElevenLabs announced a $22 billion valuation alongside a $300 million employee tender offer. The company says the valuation doubled from its February 2026 Series D, and names Wellington and T. Rowe Price as lead investors. Our own coverage is in Funding.

Large AI companies have run similar programs. OpenAI’s October 2025 employee share sale, reported at about $6.6 billion at a $500 billion valuation, is tracked with other share sales in our OpenAI valuation history. Figures in press reports of private deals come from sources close to the companies, so treat them as reported rather than audited.

Who can sell, and how much

Eligibility is set by the company, not by law. Common conditions:

• Current employees, and sometimes former employees, who hold vested shares or exercised options.
• A minimum tenure, such as a year of service.
• A cap per person, expressed as a dollar amount or a percentage of holdings.
• Early investors and founders, who are sometimes included and sometimes excluded.

Unexercised options generally cannot be sold directly. A holder typically has to exercise first, which can mean paying the exercise price and possibly tax. Some programs allow a cashless exercise from the sale proceeds, but this depends on the plan documents.

Caps matter. If the pool of buyers is smaller than the shares offered, the company may prorate each seller’s amount. Read the offer document for the proration rule before assuming a full sale.

Do SEC tender offer rules apply to a private company?

Partly, and it depends on the structure. The SEC’s issuer tender offer rule, Rule 13e-4, covers issuers with a class of equity securities registered under Section 12 of the Exchange Act or required to file reports under Section 15(d). A typical venture-backed startup has neither, so that rule generally does not govern its buyback. Companies still take legal advice on each program.

For public-company tender offers, that rule requires:

• The offer must stay open at least 20 business days.
• If the company seeks fewer shares than are tendered, it must accept them pro rata.
• Holders can withdraw tendered shares while the offer is open.

The broader Rule 14e-1 sets a 20-business-day minimum for any tender offer it covers. Separately, the antifraud provision in Section 14(e) of the Exchange Act prohibits false statements or misleading omissions of material facts “in connection with any tender offer,” and its text is not limited to registered securities. In practice, private companies often borrow protections such as a clear offer document and a fixed window, but whether the formal rules apply to a given deal is a question for lawyers.

Employees should also check the company’s own stock plan and any transfer restrictions in the shareholder agreement, which commonly require board approval for any sale.

Tax questions to raise before you sell

Tax outcomes depend on what you hold and how long you have held it. The points below come from official US sources, as of October 2026.

• Selling stock bought through option exercise. The IRS says stock option sales generally produce a capital gain or loss, with ordinary income treatment if special holding period rules are not met.
• Incentive stock options (ISOs). Under Internal Revenue Code Section 422, favorable ISO treatment requires that you do not sell the shares before the second anniversary of the option grant or before the first anniversary of the share transfer on exercise. In practice you must hold past both dates, and a sale before either one is a disqualifying disposition. A tender offer can trigger one if you sell too early.
• The $100,000 ISO limit. ISOs first exercisable in a year with a combined grant-date fair market value above $100,000 are treated as non-ISOs.
• Nonstatutory options. The IRS notes that the spread at exercise is generally included in income, and a later sale is generally a capital gain or loss.
• Alternative minimum tax. The IRS flags that exercising an ISO may trigger AMT in the exercise year.

If you hold restricted stock, the 83(b) election affects your holding period and basis. See our guide to the 83(b) election. For qualified small business stock, see QSBS rules, since selling can affect eligibility planning. A tax adviser should check your specific position before you tender.

Tender offer vs IPO vs secondary marketplace

• IPO. Shares become publicly tradable, but employees usually face a lock-up. See IPO terms explained.
• Tender offer. Company-organized, one-off or periodic, with an agreed price and a closing date.
• Secondary marketplaces and block sales. Holders sell to buyers through platforms or brokers, usually with company consent and often at a discount to the last round.

The attraction of a tender is that the company has approved the sale and the buyer pool and price are set in advance. For AI and other fast-growing startups, it also helps retain staff whose equity is worth a lot on paper but cannot be sold. More on the money side of AI companies is in AI Business.

Risks and trade-offs for employees

• Selling now means giving up future upside if the company grows.
• Keeping everything means concentration risk if the company stumbles.
• Prices can be below what later investors pay. The price is set by the company and buyers, not by the employee.
• Offers can be limited to certain groups, so being left out is common.
• Tax bills can arrive before or alongside the cash.

Whether to sell is a personal decision. Read the offer document, ask about the proration rule and the tax withholding, and get independent advice.

Frequently asked questions

What is a tender offer for a private company?

It is an invitation to existing shareholders, typically employees and early investors, to sell shares at a stated price during a fixed window. The buyer is the company or outside investors.

How does a tender offer work for employees?

The company announces the price, the cap and the deadline. Eligible employees decide how many vested shares to sell, and the buyer settles the trades when the offer closes.

Is a tender offer the same as a buyback?

A buyback is one kind of tender offer, where the company itself pays for the shares. A tender can also be funded by outside investors who buy the shares instead.

Do employees have to sell in a tender offer?

No. Participation is voluntary, and employees can sell all, some or none of what they are eligible to sell.

Are tender offer proceeds taxed?

Usually yes, and the tax type depends on the shares and holding periods involved. Selling too early after exercising ISOs can turn part of the gain into ordinary income, so check with a tax adviser first.