Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Are Using Tender Offers to Cash Out Before an IPO
Transcript
- Lucas: You know, I was looking at the private-company filing data this morning, and one number jumped out: in the first five months of 2026, there have already been more than sixty tender offers from us based startups valued over a billion dollars. Luna: That's a lot of liquidity flowing before any actual IPO. And I think a lot of listeners hear 'tender offer' and picture something that only happens to public companies. Lucas: Exactly. So let's clear that up. A tender offer in the private market is basically a company-sponsored program where employees and early investors can sell some of their shares to a buyer — often a mutual fund or a sovereign wealth fund — at a set price. It's not a new funding round. The company doesn't issue new shares. It's purely a liquidity event for existing holders. Luna: And the buyer gets a piece of a high-growth company without having to wait for an IPO. So it's like a pre ipo secondary, but structured by the company itself. Lucas: Right. And the big story here is that these have become much more common in the last three years. A decade ago, if you joined a startup as employee number fifty, you basically had to wait for an acquisition or an IPO to see any real money. Now companies are running tender offers every twelve to eighteen months as a matter of course. Lucas: I want to ground this in a specific case. There's a fintech company — we'll call it 'NovaPay' since it's still private — that just wrapped up a $400 million tender offer at a $12 billion valuation. The interesting part is that the company itself didn't raise any new capital. This was purely a sale of existing shares by employees and early backers. Luna: And that's a key distinction. If you're a founder, you're not diluting your ownership. You're just letting people who've been holding paper for years turn it into cash. Lucas: Yeah. And listen — quick honest thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these episodes. It keeps us ad-free and focused on the numbers that matter for people actually building or investing in companies. Luna: And we really appreciate it. It's a small group, but it makes a huge difference in being able to do deep dives like this one. Lucas: So back to NovaPay. They set a maximum of $400 million, but employee demand was actually higher. They had to pro-rate allocations — meaning everyone who wanted to sell got to sell, but only a portion of their shares. That's a good problem to have, but it also tells you something about how much unrealized value is sitting inside these companies. Luna: It also tells you that employees are becoming more sophisticated about liquidity planning. Five years ago, they might have just held everything until the IPO. Now they're treating these tenders as portfolio rebalancing events. Lucas: Absolutely. And there's a strategic angle for the company too. By running a tender, NovaPay can signal to the market that there's a clear valuation — $12 billion — without the scrutiny of an IPO roadshow. It lets them test the waters. Luna: Is that why some big names like Stripe and SpaceX have been doing these for years instead of going public? Lucas: Partly. For Stripe, the tender offers became a way to keep employees happy and retain talent while the company stayed private. They ran multiple tenders — I think they did one at $95 billion, then another at around $50 billion when the market cooled, and then back up. The flexibility is huge. Lucas: But there's a risk I want to flag. If a company runs tenders at a valuation that later drops — say the market turns and the next round comes in lower — employees who sold in the tender did well, but the ones who held are underwater. That creates tension. Luna: Right, and that's exactly what happened with some high-profile names in 2022 and 2023. The tender valuation becomes a psychological anchor. Lucas: Yeah. So founders need to be thoughtful about timing. If you run a tender in a frothy market and then the IPO market softens, you've essentially locked in a high watermark that might not hold. That's not just a morale issue — it can complicate future fundraising. Luna: Speaking of market signals, I noticed ARKG is up more than 9 percent in the last five days. That's a big move for biotech. Is that related to this liquidity story at all? Lucas: Indirectly, yes. Biotech has been a tough sector for IPOs. A lot of those companies are staying private longer and using tenders to give their investors exits. So when you see a sector ETF jump like that, it often means the market is re-rating risk on the back of some positive data — or just a rotation back into growth. RIVN is up 6.5 percent this week too, which fits the same pattern of beaten-down growth stories getting a second look. Luna: So the broader narrative is that the private markets are becoming more liquid, and that's actually changing the calculus for when to go public. Lucas: Exactly. If you can give your employees and early investors liquidity through tenders, and you can raise capital privately without the quarterly pressure of being public, why rush? The average time from founding to IPO has stretched from about four years in the 1990s to over eleven years now. Luna: And that's where tender offers become a strategic tool — not just a payout event, but a way to extend the private runway while still rewarding the people who helped build the company. Lucas: Right. So for founders listening, here's the practical takeaway. If you're thinking about a tender offer, start planning at least six months ahead. You need to pick a valuation that feels fair but not aggressive. You need to decide whether to cap the total amount or let everyone sell a percentage. And you need to communicate clearly with employees about the tax implications — because selling shares in a tender can trigger a big tax bill if they're not prepared. Luna: And the mechanics: who buys the shares? Often it's a pre-negotiated pool of institutional investors. The company doesn't want to run a full auction every time. Lucas: Yeah, usually you line up a lead buyer — could be a mutual fund like T. Rowe Price or a crossover fund like Tiger Global — and they agree to buy up to a certain amount. Then employees submit their desire to sell, and the company works with the buyer to allocate. Lucas: One more thing: tender offers also work as a retention tool. If you let employees sell, say, 20 percent of their vested shares every year, they feel wealthy enough to stay, but they still have a big incentive to keep building toward a larger exit. That's the 'golden handcuffs' idea, but modernized. Luna: It's like the company is saying, 'We see your paper wealth, and we want you to be able to use some of it now, but we also want you to be locked in for the long game.' Lucas: Exactly. And I think that's the real evolution here. Tender offers are no longer a niche tool for distressed situations or last-minute pre ipo cleanups. They're becoming a standard part of the private-company compensation and liquidity architecture. Luna: So what's the next frontier? Are we going to see companies offering tenders on a regular schedule, like every six months? Lucas: I think so. Some companies are already doing that. There's a fintech called Carta that processes a lot of these, and they've talked about companies moving toward a 'liquidity program' model — similar to how public companies have dividend policies. It changes the whole relationship between the company and its shareholders. Luna: That would be a huge shift. It basically makes private companies behave more like public ones, but without the regulatory overhead. Lucas: Right. And it raises interesting questions about the future of the IPO itself. If you can get liquidity, raise capital, and reward employees all without going public, what's the remaining value proposition of an IPO? For some companies, it might just be brand awareness and a currency for acquisitions. Luna: Or it could be that IPOs become the endpoint only for companies that need a massive public float — like a Stripe or a SpaceX — but for everyone else, the tender offer is the new exit. Lucas: That's the direction we're heading. And for founders building today, understanding these tools is becoming as important as understanding your product-market fit. The exit isn't just one event anymore. It's a series of events, and tender offers are increasingly the first one. Luna: It really does change the game. Thanks for breaking that down, Lucas. Lucas: Thanks for the questions. That's it for this episode of The Startup Exit. We'll be back with another angle soon.