Tender Offers and Company Buybacks

How private companies create occasional liquidity for shareholders, and how to decide whether to take it.

Last reviewed on 27 April 2026

For most pre-IPO shareholders, the cleanest liquidity event is a company-run tender offer. The company itself, or a primary investor it has invited in, agrees to repurchase a defined number of shares at a defined price during a defined window. No platform middleman, no synthetic structure, no scrambling for a willing buyer — but also no negotiation room and a number of strings attached.

This page explains the mechanics, the eligibility rules companies typically use, and the trade-offs against a secondary sale on a platform like Forge or Hiive. It is the natural follow-on to our how-to-sell guide for employees and early investors who want to plan ahead.

What a Tender Offer Is

In the private-company context, a tender offer is a structured, broad-based opportunity for existing shareholders to sell a portion of their holdings back to the company or to a designated buyer. There are two common flavours:

  • Issuer tender. The company uses cash on its balance sheet to repurchase shares. The repurchased shares are typically retired or moved to treasury.
  • Third-party tender. An incoming or existing investor (a venture firm, a strategic, or a special-purpose vehicle they sponsor) buys shares from current holders. The investor's capital often comes alongside a primary round, with the secondary tranche giving employees liquidity.

Both flavours run on the same general timeline. The company files internal documents (or, when required, SEC filings under Rule 13e-4 or Schedule TO), notifies eligible holders, opens a participation window of usually 20 business days, and then closes by paying participants and, if oversubscribed, prorating allocations.

Who Is Eligible

Eligibility is set by the company. There is no SEC-mandated rule that all holders must be invited. Common patterns:

  • Tenure floor. Employees with at least 1–2 years of service at the company.
  • Vested-share floor. Only fully vested shares can be tendered; unvested options are excluded.
  • Per-holder cap. Each eligible holder may tender up to a percentage of their vested holdings (commonly 10–25%).
  • Status filter. Active employees only, or active plus those who left in good standing within a recent window.
  • Investor inclusion. Some tenders extend to former employees and outside investors who hold common or preferred stock; many do not.

Read the eligibility memo carefully. The same tender will sometimes treat exercised stock options, unexercised options that you exercise specifically to participate, and converted RSUs differently.

How Pricing Works

The tender price is set by the company in negotiation with the lead investor (in a third-party tender) or the board (in an issuer tender). It is usually anchored to one of three reference points:

  • The 409A valuation for common stock — common in employee-only tenders.
  • A discount to the most recent preferred-stock funding round — typical when an investor is leading a third-party tender alongside a primary round.
  • An independent appraisal commissioned for the tender — used when the most recent valuation is more than six months old or unusually contentious.

You do not negotiate. The price is take-it-or-leave-it for everyone in your share class.

Tender Pricing vs Secondary-Market Pricing

The two are different and often diverge:

  • Tender prices reflect what the company and a single buyer will pay for a controlled, sometimes oversubscribed pool. They tend to be steady — the same number for everyone, the same number across the window.
  • Secondary-market prints reflect what individual buyers are willing to pay across many small transactions. They can be higher in hot sectors and lower when sentiment turns. They also reflect platform fees and SPV layers.

It is common for a tender priced near a recent 409A to come in 20–40% below the simultaneous secondary print on platforms — and equally common for an investor-led tender to clear above the secondary, because the investor wants to build a meaningful stake and is paying for size.

Tender Offers and Right of First Refusal

A tender resolves the company's Right of First Refusal by being the company's purchase. There is no separate ROFR step inside a tender — the company is choosing to buy in the first place. This is one reason tenders are mechanically simpler than a platform secondary: the cap-table consent is built in.

Outside a tender, the same company would typically have 30 days to exercise ROFR after a holder presents a third-party offer, blocking many secondary attempts. Tenders are the company's structured alternative to handling those one-off requests.

Tax Implications

For most participants, tender proceeds are taxable as capital gains, with the holding period running from the date the tendered shares became fully owned by the seller. That date depends on the type of equity:

  • Exercised stock options. Holding period begins on the exercise date.
  • Restricted stock with an 83(b) election. Holding period begins on the grant date.
  • RSUs. Holding period begins on the vesting date when shares are delivered.

A long-term holding period (12+ months) usually qualifies the gain for preferential federal rates. Cross-state employees and former-state residents may face different rules — see our tax-implications guide for the state-by-state effects and the QSBS rules under Section 1202, which can shelter substantial gains for qualifying small-business stock if you have held five years or longer.

An issuer tender can occasionally trigger dividend treatment rather than capital-gains treatment if the IRS deems it economically equivalent to a corporate distribution. The company's tender documents normally include a memo on expected treatment, but a CPA review is worth the cost on any meaningful position.

Should You Participate? A Decision Framework

Tendering is not a default-yes decision. Treat it as one of several tools and weigh it against the alternatives.

Reasons to Tender

  • You have meaningful concentration risk — a large fraction of your net worth in one private name.
  • You need liquidity for a defined purpose: tax bill, home, debt, education.
  • The price is at or above your reasonable expectation of fair value, and your view on the company is unchanged.
  • You have already exercised at low prices and a long-term capital-gains holding period applies.
  • You expect future tenders to be smaller, less frequent, or priced worse — common when the company is moving toward an IPO and using tenders as a transitional tool.

Reasons to Hold Off

  • The price reflects the lower end of recent valuation marks and you have a high-confidence view that the next round will price up.
  • Selling now triggers AMT or short-term gains that erode most of the proceeds. (See the employee stock options guide for AMT mechanics.)
  • Your shares qualify, or are close to qualifying, for QSBS — selling early forfeits a meaningful tax break.
  • You believe an IPO is within 12–18 months and the post-IPO price, even after lock-up discounts, will exceed the tender price.
  • The eligibility cap forces an inefficient partial sale — sometimes selling more is better than selling a sliver, and you would prefer to wait for a wider window.

What Happens If a Tender Is Oversubscribed

Most popular tenders close oversubscribed: more shares are tendered than the company is buying. The standard handling is pro-rata allocation within each eligible group. If a tender is sized to repurchase 10% of vested employee stock and you tender your full 10% allowance, you will probably be cut back along with everyone else.

Some tenders give priority to small holders to ensure liquidity for less-resourced employees, capping the dollar amount any one holder can sell before pro-rata kicks in. The mechanics are documented in the offering memo — read it before guessing.

After the Tender Closes

Closing usually means:

  • You sign the tender agreement during the window, then wait. There is normally no early withdrawal once the window closes.
  • Cash settles within 1–10 business days after the close date.
  • The company updates the cap table; your remaining holdings continue to be subject to the same transfer restrictions as before.
  • You receive a tax document — usually a 1099-B for issuer tenders or a K-1 if a third-party SPV bought through the tender.
  • Many tenders impose a "no further sale" period of 6–12 months on holders who participated, blocking platform secondaries during that window.

Common Mistakes

  • Treating the tender price as the company's "real" valuation. It is one valuation, set for a specific purchase. The 409A, the funding round, and the secondary market each tell a different story.
  • Over-tendering and getting pro-rated unpredictably. If the cap is 10%, tendering 25% does not increase your allocation past the pro-rata floor. It just locks in your participation.
  • Ignoring the AMT clock. Selling ISOs in the same calendar year you exercised them disqualifies the ISO treatment.
  • Forgetting state tax. A tender that funds in California is often taxed in California even if you have moved.
  • Skipping documentation. Save the tender memo, the price, the per-share basis, and the fees. Cost-basis disputes years later are costly to untangle without records.

Where to Read Next

Tenders are one of several liquidity tools. The how-to-sell guide covers platform secondaries and direct sales as alternatives. The employee stock options guide covers exercise timing decisions, which often determine whether participating in a tender is sensible. The valuation guide explains the difference between 409A, last-round, and secondary prices that drive tender pricing.