Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Tender Offers for Pre-Exit Liquidity
Transcript
- Lucas: So there's this quiet move happening across the startup world right now, and it doesn't involve an IPO or an acquisition. It's the tender offer — a structured window where founders and early employees can sell a slice of their private shares to outside investors before the company ever hits the public markets. Luna: And it feels like every week we hear about another late-stage startup doing one. Why the sudden uptick? Lucas: Part of it is the market. Look at the numbers from the last five days: Coinbase up nearly 24 percent, Rivian up 14, Palantir up four and a half. High-growth tech is back in favor, and that froth spills into the private markets. Buyers — mutual funds, sovereign wealth, crossover investors — they want exposure before the IPO pop, and a tender offer is how they get it. Luna: So it's a win-win? Founders get cash, investors get in early. Lucas: It can be, but it's not automatic. The classic example is Palantir. They ran tender offers for years before their direct listing in 2020. Each round was a structured opportunity for employees to sell, and it created a de facto price discovery mechanism. A private company doesn't have a ticker telling the world what it's worth, so a tender offer becomes that signal. Luna: Right, and that price then anchors the conversation with future investors. But what does it actually look like for a founder sitting at the table? They're giving up shares before the big payday. Lucas: That's the psychological hurdle. You're telling your early believers, 'Hey, you can take some chips off the table now,' and some founders worry that signals a lack of conviction. But the data shows the opposite. A well-run tender offer can actually boost morale, because the people who took the risk finally see a tangible reward. And it can reduce the pressure to IPO prematurely, because employees aren't desperate for liquidity. Luna: And that's a big deal for retention. If the lockup is two years away, an employee might jump ship to a company that offers an earlier exit. A tender offer is a retention tool. Lucas: Exactly. But there's a structural trap: the price in a tender offer is often set by the company, and it can be generous or stingy depending on who's running the process. If you set it too high, you attract investors who expect that valuation to hold, and then the next round has to be even higher or you face a down round. Set it too low, and employees feel shortchanged. Luna: So it's a delicate balance. What's the typical size? Are we talking 5 percent of the company, or more? Lucas: Usually it's between 5 and 15 percent of the cap table. The company designates a pool, and employees get to sell a percentage of their holdings — often with a cap so the founders don't dilute their control. The mechanics matter: some tender offers let employees sell up to 25 percent of their vested shares, others are more restrictive. Luna: And the buyers? They're not just passive. They're often doing this because they want a seat at the table or insight into the company's trajectory. Lucas: Right, and that's where it gets interesting. Some investors use tender offers as a way to build a position before an IPO, but they don't get voting rights attached to those shares in the same way. So the company keeps control, but the investor gets a stake and a relationship. It's a strategic courtship. Luna: I wonder about the tax side. Selling shares pre ipo — is that treated differently than a post ipo sale? Lucas: Tax is a huge factor, and it's the part founders often overlook. If you sell in a tender offer, you're triggering a taxable event at the current fair market value. That's usually a long-term capital gain if you've held the shares for over a year, but it can be a shock to the system if you haven't planned for the cash outflow. I've seen founders get hit with a six-figure tax bill and realize they netted less than they thought. Luna: So it's not just about the check you receive, it's about what you keep after taxes and fees. And there are fees — the platform, the legal work, the financial advisor. Lucas: Absolutely. The typical cost structure includes a fee to the secondary market platform — could be 1 to 3 percent — plus legal fees for drafting the tender offer documents, and often a financial advisor to set the price. It adds up. But for many employees, the net proceeds still represent a life-changing amount. Luna: And there's also the question of dilution. When new investors buy secondary shares, the company doesn't get the cash — that goes to the sellers. So what's the incentive for the company to even run the process? Lucas: That's the key nuance. The company doesn't raise money in a secondary tender offer. But it does get something valuable: it can retain key talent by giving them liquidity, it can manage the cap table by buying back shares from departing employees, and it can create a shareholder base that's aligned with the long-term vision. Some companies even use a portion of the proceeds to buy back shares into treasury, which then can be used for future grants. Luna: So it's a strategic tool, not just a payout. But I imagine there's a risk of setting a precedent. If you run one tender offer, employees might expect another one every year. Lucas: And that's a real challenge. You need to communicate clearly that this isn't a recurring program. If employees see it as an entitlement, it can create friction when the next one doesn't come. The best practice is to run it as a one-time event tied to a specific milestone, like a funding round or a profitability threshold. Luna: That makes sense. And what about the impact on the company's story? If a founder sells a big chunk, does that raise eyebrows with future investors? Lucas: It can, but it's a perception issue. If the founder sells, say, 5 percent of their stake, it's usually seen as prudent diversification. But if they sell 30 percent, investors start asking why. The key is to sell a modest slice — enough to take some chips off the table, but not so much that it signals a lack of faith. Luna: And that's where the art comes in. It's not just about the numbers, it's about the narrative. Lucas: And the narrative matters a lot in this market. We're in August 2026, and the IPO window has been open, but it's selective. Companies are waiting longer, and tender offers have become a bridge to keep employees happy while they wait. The data shows that companies that run tender offers tend to have lower turnover and a more patient investor base. Luna: So it's almost a best practice now. But what's the one thing founders get wrong most often? Lucas: I'd say it's not thinking through the cap table implications. When you let employees sell, you're bringing in new investors who may have different expectations. If you don't manage that carefully, you can end up with a board member who's pushing for an exit you don't want. The best tender offers are structured with a clear agreement about future rights and expectations. Luna: So it's a long-term relationship, not just a transaction. Lucas: Exactly. And if today was genuinely useful to you — whether you're building a company or just curious about how the machinery works — the way these conversations stay ad-free is through listener support. If you want to keep this going, you can find us at buy me a coffee dot com slash fexingo. It's a simple way to say this mattered. Luna: Yeah, and we genuinely read every message. It keeps us honest. Lucas: So back to that relationship point. A well-structured tender offer can actually strengthen the bond between a company and its investors. It's a signal that you're thinking about all stakeholders, not just the ones with board seats. And that reputation pays off when you eventually do go public — you'll have a base of investors who already understand your story. Luna: And when you look at the recent flurry of IPO filings, I bet many of those companies had tender offers in their history. It's almost a prerequisite now. Lucas: It's becoming one. The days of the all-or-nothing IPO are fading. Tender offers give founders more control over their exit timeline and their personal wealth. It's a sign that the startup ecosystem has matured. Luna: So if you're a founder listening, what's the takeaway? What's the one number or rule you should remember? Lucas: I'd say this: don't sell more than ten percent of your stake in a tender offer. That keeps the story intact, gives you meaningful liquidity, and leaves plenty of upside for the long haul. And talk to a tax advisor before you sign anything. Luna: Solid advice. And maybe think about it as a tool for building a stronger company, not just cashing out. Lucas: Exactly. It's a bridge to the future, not a golden parachute. The best founders use it to keep their teams motivated and their companies on track.