Tender offers: the employee's complete guide
A tender offer is the rare moment private-company equity becomes money. The window is short, the paperwork is dense, and the tax outcome depends on choices you make inside the window. Here's the whole shape, start to finish.
What a tender offer is
The company (or an investor it brings in) offers to buy a portion of employees' vested equity at a set price during a fixed window — typically a few weeks. It exists because the company wants to stay private longer without losing people who need liquidity: it's a pressure valve, run on the company's terms.
- Eligibility and caps: offers usually limit who can sell (tenure, vested status) and how much — commonly a percentage of your vested position. Oversubscribed offers may prorate.
- The price is set in the offer documents. It's typically informed by the latest round or secondary pricing — but it is not a market quote, and it's usually well above the 409A value your option strikes were set against (those numbers measure different things).
- Restrictions still apply: shares you don't tender remain subject to transfer restrictions; you generally can't sell outside these windows without company consent.
How the taxes work, instrument by instrument
| What you tender | Typical federal treatment | Watch for |
|---|---|---|
| Shares held > 1 year | Long-term capital gains on price minus basis | NIIT (3.8%) at higher incomes; state rates |
| Shares held ≤ 1 year | Short-term gains at ordinary rates | Sometimes worth checking the calendar before the window closes |
| NSOs exercised-and-sold | Spread taxed as ordinary income (payroll withholding applies) | Supplemental withholding often undershoots the real rate |
| ISOs sold in the window | Immediate sale is a disqualifying disposition → ordinary on the spread | Exercising and holding instead triggers AMT math — model both paths |
| PPUs / profit units | Depends on unit structure — not safely assumed | Get the agreement read by a pro; see OpenAI PPUs |
Estimate your own after-tax number with the net-proceeds calculator.
Deciding how much to sell
- Start from concentration, not conviction. What percentage of your net worth is this one company — including unvested grants? Above ~50%, the realistic question isn't whether to sell but how much.
- Cap the downside. A durable frame: sell enough that if the company's value went to a fraction of today's, your family's plan still works — house, runway, retirement trajectory intact. Keep upside with the rest.
- Belief is allowed — sized. Tendering 25–50% of what you're permitted to sell is a common landing zone for people who are bullish but mortal. Zero and 100% are both statements of certainty nobody actually has.
- Mind the next window. If your company runs offers regularly (OpenAI's reported $6.6B 2025 tender is the recent benchmark), you're choosing a pace, not a one-shot. If windows are rare — or your company goes public and trades tenders for lockups, as SpaceX just did — the calculus changes entirely.
- Then optimize the tax — lot selection, instrument order, state timing — inside the sizing decision, not instead of it.
Inside the window: mechanics
- Read the offer documents (price, caps, proration, deadlines, releases you're signing).
- Inventory your equity by lot: grant dates, exercise dates, basis/strike, holding periods.
- Model after-tax proceeds per lot and pick what to tender.
- Submit early — windows close hard, and paperwork problems eat days.
- Reserve the tax: capital gains aren't withheld; spread withholding usually undershoots. Park it; pay quarterlies.
After the money lands
The tender is the start of the actual plan: estimated taxes set aside, a cash runway, diversified investment of the rest, and — if this was a big one — coordination on charitable lots, 529s, estate basics, and next-window strategy. That full picture is what a fee-only equity specialist builds.
Common mistakes
- Planning with the gross number and discovering the tax in April.
- Selling zero "because it keeps going up" — concentration isn't a thesis, it's an accident of employment.
- Exercising ISOs in the window without comparing the disqualified-sale path against exercise-and-hold AMT math.
- Missing the deadline collecting opinions. Decide with a model, not a poll.
Window open or coming? Model it first.
Get matched with a fee-only fiduciary who works tender offers — sizing, lots, AMT, states, and the plan for the proceeds. Free, no obligation.