Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Private Tender Offers Before an IPO
Transcript
- Lucas: If you're a founder building toward an IPO, the conventional wisdom has always been that your team gets their big payday the day the stock starts trading. But that's changing fast — and one of the most interesting alternatives today is the private tender offer. Luna: You mean letting employees and early investors sell shares before the company actually goes public. Lucas: Exactly. And it's not a niche strategy anymore. Plaid did a $500 million tender offer in 2021, before its planned IPO got delayed. Stripe has run multiple tender offers since 2021, giving employees liquidity while staying private. And just this year, Databricks — valued at $188 billion — used a tender offer to let employees cash out some shares ahead of its IPO. Luna: So the pitch to founders is: you keep your team happy, you avoid the scrutiny of a public listing, and you still give people a way to access their wealth. Lucas: Right. The core mechanics are pretty straightforward. A company partners with a liquidity provider — usually a large institutional investor like Coatue, D1 Capital, or T. Rowe Price. That provider buys shares from employees and early investors at a price determined by a third-party valuation. The shares are typically common stock, so the price is at a discount to what preferred shareholders paid in the last funding round. Luna: How much of a discount are we talking about? Lucas: It varies, but commonly 20 to 30 percent below the most recent preferred round price. That reflects the lower liquidity and fewer rights of common stock. In Stripe's tender offers, for example, the price was set around $30 per share in 2023, while its last funding round had preferred shares priced at $40. Luna: So the institutional buyer gets a discount, the employees get cash, and the company delays its IPO. But there are risks. Lucas: Two big ones. First, dilution. If the tender offer is structured as a primary sale — meaning the company issues new shares to the buyer — existing shareholders get diluted. Most tender offers are secondary, where the buyer purchases existing shares, so dilution is limited. But the company often needs to register the shares with the SEC, which brings regulatory costs. Luna: And the second risk? Lucas: SEC scrutiny around Rule 144 — the rule that governs how affiliates can sell restricted stock. If the tender offer isn't structured carefully, the SEC can treat it as a public offering, which triggers registration requirements. That's why most tender offers are limited to accredited investors and don't involve general solicitation. Luna: So you're seeing this most often at companies that have already raised significant capital and have a clear path to IPO, but want to delay for strategic reasons. Lucas: Exactly. And the current market in mid-2026 is making that even more appealing. IPO activity is uneven — some big names have gone public, but many are waiting. Meanwhile, the tech-heavy NASDAQ has been choppy. Look at Tesla, down 15.8 percent in just the last five days. Or Shopify, off 9.5 percent. In that environment, founders are understandably reluctant to take their companies public. Luna: And their employees are sitting on paper wealth that could evaporate if the market turns. Lucas: Precisely. A tender offer gives them a chance to lock in gains. It's not a full exit — most caps limit employees to selling 20 to 30 percent of their vested shares — but it's meaningful liquidity. And it sends a signal to the market that insiders are willing to sell at a certain price, which can help anchor expectations for the eventual IPO. Luna: Are there any downsides for the employees? Beyond the discount, I mean. Lucas: Tax treatment is a big one. If the tender offer is structured as a sale, it's a capital gain event. But if the company later goes public at a much higher price, the employee who sold early leaves money on the table. And there's the risk that the tender offer doesn't close — some are conditional on a minimum number of shares being tendered. If interest is low, the whole thing falls apart. Luna: So it's not a perfect solution, but it's a tool that's becoming more common. And for founders trying to retain talent, it's a powerful one. Lucas: Yeah. And I think the trend is only going to accelerate. As the venture capital cycle matures and more companies stay private longer, the pressure to provide liquidity will grow. Tender offers are a way to relieve that pressure without losing control. Luna: And keeping control — that's really what it's about for most founders. They don't want to hand the reins to Wall Street until they're ready. Lucas: Right. So if you're a founder looking at your cap table and seeing key employees who've been with you for five, six years, and you want to keep them motivated, a private tender offer is worth serious consideration. Just make sure you have good legal advice and a clear sense of the dilution trade-offs. Luna: And if today's episode gave you something useful to think about, one way to keep these conversations going is listener support. It's what keeps the show ad-free and focused on what matters. Lucas: Yeah, exactly. If you found value in the breakdown, you can support the show at buy me a coffee dot com slash fexingo. It's a simple way to say this kind of deep-dive is worth your time. Luna: And we really appreciate it. Alright, back to the topic — one more thing I've been wondering. How do tender offers interact with the company's valuation for the next funding round? Lucas: That's a great question. The tender price effectively sets a floor for the common stock valuation. If a liquidity provider buys at $30 per share, that becomes a reference point. Future investors will look at that price and adjust their expectations. It can create tension if the company wants to raise at a higher valuation but the tender price suggests the common stock is worth less. Luna: So it's not just a liquidity event — it's also a data point for the market. Lucas: Exactly. And that's why founders need to be thoughtful about timing. If you run a tender offer too close to your next funding round, you can inadvertently signal weakness. But if you do it well, it's a vote of confidence from sophisticated investors. Luna: Thanks, Lucas. I think our listeners have a much clearer picture of how this tool works now. Lucas: Glad to help. Next time, we'll look at how founders can use staged earnouts in M&A to close valuation gaps — a different kind of liquidity, but equally important.