Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Tender Offers for Pre-IPO Liquidity
Transcript
- Lucas: If you're a founder sitting on equity worth tens of millions on paper but you can't touch a dime of it until a sale or an IPO, the gap between net worth and actual cash can stretch for years. Tender offers are one way to close that gap without going public. Luna: And we're seeing more of them lately. I noticed a headline last week about a fintech unicorn — let's call it 'PulsePay' — that just closed a tender offer letting early employees and angel investors sell about four hundred million dollars' worth of shares to a group of secondary buyers. Lucas: Right. That's a big number, and it's not an IPO. PulsePay isn't listed. It's not even filing an S-1 yet. They structured this as a private transaction where existing shareholders could tender their shares at a fixed price — typically at a discount to the last primary round valuation, but still high enough to give sellers meaningful liquidity. Luna: What's the typical discount? Ten, fifteen percent? Lucas: In a tender offer, the discount can vary widely. For PulsePay, I've seen reports that the price was set around fifteen percent below the company's most recent valuation of three point two billion. So the buyers got a small discount, and the sellers got cash. It's a win-win if you're patient. Luna: And for the company itself, it avoids the scrutiny of an IPO roadshow, the quarterly earnings pressure, the whole circus. You get to stay private while giving your early believers an exit. Lucas: Exactly. And this is especially attractive in a market where IPO windows have been unpredictable. Look at Rivian and Coinbase — both public now, but their stocks have been volatile. Rivian is down to about seventeen dollars, Coinbase around one fifty-seven. A founder who went public two years ago might be wishing they'd done a tender offer instead. Luna: But there's a structural catch, right? Tender offers typically have a cap. Not everyone can sell. The company decides who gets to participate and how much they can sell. Lucas: That's the key tension. PulsePay's tender offer was available only to shareholders who had held for at least six months, and there was a per-person cap of two million dollars. So it's not full liquidity — it's partial. But for early employees who have been sitting on options for years, two million bucks can be life-changing. Luna: It also sends a signal to the market. If a company can raise secondary capital at, say, two point seven billion dollars, that becomes a floor for the next primary round. It tells VCs, 'Look, we have a demonstrated clearing price.' Lucas: That's a great point. Tender offers serve as a pricing signal. And they're cheaper than an IPO. Legal fees, filing costs, auditing — all lower because you're not registering with the SEC. You're just doing a private placement. Luna: But it's not free. The company has to hire a dealer manager, maybe an independent valuation firm to set the price, and counsel to ensure compliance with securities laws. It's a process. Lucas: Absolutely. But compared to the multi million dollar cost of an IPO, it's a fraction. And it keeps the company out of the public eye. No quarterly conference calls, no analyst questions about guidance. Luna: Speaking of keeping things going — you know, it's funny, we talk about liquidity events for founders, but the show itself runs on a different kind of liquidity. 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 episodes a week. Lucas: Yeah, it's true. No ads, no sponsors. Just listeners who get value from the conversations and want to keep them going. It's a small group, but it's enough to keep us independent. Luna: And it means we can cover topics like tender offers without worrying about pleasing a sponsor. So if these episodes are useful for what you're building or running, that link is buy me a coffee dot com slash fexingo. Lucas: Alright, back to tender offers. One thing I find interesting is how they interact with valuation caps in option pools. If the tender price is set at a discount, the company's 409A valuation — the one used for option pricing — might also come down, which could affect how many options employees need to grant to hit their targets. Luna: That's a real headache for compensation. If options are suddenly worth less per share, you might need to grant more to retain talent. Lucas: Exactly. So companies sometimes structure tender offers as a separate class of stock — a 'shadow series' that doesn't affect the common stock valuation used for options. That's what Stripe did in its early tender offers. They created a separate series just for the secondary sale. Luna: But that adds complexity. More legal docs, more board approvals. Lucas: It does. But for a company like PulsePay, which has over a thousand employees, the benefit of providing liquidity can outweigh the complexity. Employee morale improves when people can actually realize some of their paper wealth. Luna: And it can help with retention too. If an employee knows they can sell a portion of their shares every year or two, they might be less likely to jump ship for a public company that offers cash comp. Lucas: Right. Some companies now do recurring tender offers — every twelve or eighteen months. That creates a regular liquidity program. Palantir did something like that before its direct listing. It's almost like a dividend for equity holders. Luna: But there's a downside: recurring tenders can put downward pressure on the stock price if too many people sell. You need enough demand from secondary buyers to absorb the supply. Lucas: That's where the buyer pool matters. In PulsePay's case, the buyers were a consortium of sovereign wealth funds and crossover hedge funds. They had long-term horizons. They weren't flipping shares. So the company felt comfortable doing a four-hundred-million-dollar tender. Luna: What about tax implications? If an employee sells in a tender, they trigger a taxable event. That can be a shock if they weren't expecting it. Lucas: Big issue. Employees should talk to a tax advisor before tendering. In many cases, the sale is treated as a capital gain, so if they've held the shares for more than a year, it's long-term capital gains rate. But if they exercised options and sold immediately, the spread is ordinary income. It gets complicated. Luna: And founders often have to file with the SEC if they sell a large block. There are Section 16 rules for insiders. Lucas: Right. For founders who own ten percent or more, any sale — even in a private tender — has to be reported on Form 4. So there's some transparency, though not as much as an IPO. Luna: Let's zoom out. Why are tender offers becoming more popular now? Is it because of the IPO drought? Lucas: Partly. IPO volumes have been low in 2026 so far. Companies are waiting for better market conditions. But also, the secondary market infrastructure has matured. You have dedicated platforms like Forge Global and EquityZen that match buyers and sellers. It's easier to run a tender offer today than it was five years ago. Luna: And the rise of mega-unicorns means more companies stay private longer. They need liquidity mechanisms for employees who would otherwise leave. Lucas: Exactly. If you're a founder of a company worth five billion dollars and you don't plan to IPO for another three years, you almost have to offer some kind of tender program to keep your talent happy. Luna: So the question becomes: at what point does a tender offer become a substitute for an IPO? If you can offer regular liquidity through tenders, why go public at all? Lucas: That's the billion-dollar question. Some companies, like SpaceX, have done massive tender offers and stayed private for years. But there are limits. Tender offers don't give you access to public capital markets for growth. They don't give you a currency for acquisitions. And they don't provide the same level of liquidity for all shareholders — only the ones the company selects. Luna: So for now, tender offers are a bridge, not a destination. But as the secondary market matures, that bridge might get a lot longer. Lucas: And for founders sitting on monster paper gains, a well-structured tender offer can be the difference between waiting five years for liquidity and getting some cash in hand this year. That's a powerful tool.