Private-Company Tender Offers: Turning Equity Compensation Into Real Cash

If you work for a late-stage start-up or other privately held firm, a tender offer may be the first—and perhaps only—chance to transform illiquid equity compensation into spendable dollars. In a tender offer, an outside buyer (or sometimes the company itself) makes a time-limited bid to purchase employee shares. Once the window closes, your stock generally goes back to being non-marketable until an IPO, merger, or another unpredictable exit. Because the opportunity is fleeting, it pays to approach a tender offer with eyes wide open and a clear wealth plan.

When Do Tender Offers Show Up?

Tender offers most often emerge after a private company has raised multiple funding rounds, achieved meaningful revenue, and built a valuation that leaves early employees sitting on substantial book wealth—but zero liquidity. Management may green-light an offer to reward long-time talent, relieve pressure for an IPO, or clean up the cap table before a strategic transaction. Whatever the motive, the offer typically lasts just a few weeks and may not recur.

The Core Decision: Hold for a Future IPO or Sell Now?

Choosing to participate is a personal calculus that blends numbers and psychology. Keeping all your shares bets on a richer pay-out later, but does nothing to diversify a concentrated holding. Selling everything locks in today’s price, increases cash flexibility, and lowers single-stock risk, but foregoes any upside if the company’s valuation soars. Many employees strike a middle ground—tendering enough shares to secure key financial goals while keeping a stake in the company they believe in.

First Steps Once an Offer Arrives

Start by collecting every relevant document: grant agreements, option ledgers, the tender term sheet, and any blackout restrictions. Verify how many vested shares you actually control and whether unvested awards will accelerate. Pin down the offer price per share and compare it with your strike prices if you hold options. With facts in hand, model several sell-versus-hold scenarios with a fiduciary adviser who understands private-company equity. Good modeling should project net worth, tax liability, and portfolio concentration under each path so you can decide from a position of insight, not impulse.

Why You Might Say “Yes”

Cashing out during a tender delivers immediate liquidity that could:

  • cover a down payment or eliminate high-interest debt,

  • diversify an over-weighted position in employer stock, and

  • turn paper wealth into real wealth before any macro shock or deal delay erodes value.

Employees who joined early often find it exhilarating to see a concrete dollar figure replace a hypothetical future fortune.

Why You Might Hesitate

Selling today could mean missing out on tomorrow’s gains if the share price pops at IPO. Emotional loyalty, optimism bias, and simple fear of regret can make letting go difficult. There is also the tax angle: depending on grant type and holding period, tendering can accelerate ordinary-income taxation or trigger alternative minimum tax (AMT). The key is evaluating those costs against the benefit of cash in hand and a safer, more balanced portfolio.

Tax Consequences by Equity Type

  • Incentive Stock Options (ISOs) – Exercising and tendering immediately produces a disqualifying disposition: the bargain element is taxed as ordinary income and there is no AMT adjustment. Previously exercised ISOs held past the one- and two-year thresholds qualify for long-term capital-gain rates at sale.

  • Non-Qualified Stock Options (NQSOs) – The spread between strike and tender price is wage income at exercise, subject to withholding. Selling the shares right away avoids further tax exposure.

  • Restricted Stock Units (RSUs) – Units that vest in conjunction with the offer are taxed as ordinary income at the tender price. Already-vested shares generate capital gains (short- or long-term) on any appreciation since vesting.

  • Shares Owned Outright – Gains are short- or long-term depending on the holding period, and may also face the 3.8 % Net Investment Income Tax for higher-income households. Qualified Small Business Stock exclusions may apply if the stringent five-year and size rules are met.

Because the interplay of ISO AMT credits, supplemental wage withholding, and capital-gain brackets can be complex, a proactive tax projection is essential before you commit.

Putting Tender-Offer Proceeds to Work

Reserve for Taxes – Set aside enough cash to cover federal, state, payroll, and potential AMT obligations so April 15 does not bring an ugly surprise.

Fortify Your Balance Sheet – Pay down toxic debt and shore up emergency reserves. A stronger foundation lets you invest more confidently.

Invest for Tomorrow – Reallocate the remainder into a low-cost, globally diversified mix that aligns with your goals and risk tolerance, mitigating the single-stock exposure you just reduced.

Fund Life Goals – If you are on solid footing, use a portion to enrich your life now: a home upgrade, a once-in-a-lifetime trip, or a charitable gift can all be part of a balanced wealth plan.

After the Sale: Next-Level Planning

A tender-driven windfall can push you into the highest tax brackets for the year, open charitable planning opportunities, and shift your long-term asset-allocation targets. Review beneficiary designations, revisit estate strategies, and map out any further option exercises while AMT headroom remains. If your company remains private, monitor for future liquidity windows and keep your documentation current so you are ready to act again.

Ready to Weigh Your Tender-Offer Choice?

Falcon Wealth Planning’s fiduciary advisers specialize in tax-smart equity-compensation planning for founders, early employees, and seasoned executives. If a liquidity window is on the horizon, let’s build a data-driven plan that protects your wealth and supports the life you want to live. Schedule a complimentary strategy call today and start the conversation.

This commentary is for educational purposes only and is not intended as personalized investment, tax, or legal advice, nor as an offer or solicitation to buy or sell any security. Information is believed accurate but cannot be guaranteed. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Consult your professional advisers regarding your specific circumstances before acting on any information herein. Falcon Wealth Planning, Inc. is a fee-only Registered Investment Adviser.