Secondaries and tender offers

In the 1990s a successful Palo Alto startup often went public within a few years and employees could sell stock soon after. Today many companies stay private for a decade or longer. Employees who joined early may hold shares worth a lot on paper but have no public market to sell them. Secondary sales and tender offers fill that gap.

This page explains how those sales work in general terms, the rules employees usually face and what recent market data shows. It is general information, not investment, legal or tax advice. Every company's documents are different. Tax results depend on your own situation. Talk to a lawyer and a tax professional before selling.

Primary versus secondary

When a startup raises a funding round, it issues new shares and keeps the cash. That is a primary sale. When an existing shareholder sells shares they already own, the cash goes to the seller. That is a secondary sale. The company's share count does not change, but who owns the shares does.

Secondaries come in several forms:

• Direct secondaries. An employee, founder or early investor sells shares to a buyer, sometimes through an online marketplace or a broker.
• Tender offers. The company organizes a window in which a buyer offers to purchase shares from many holders at one price.
• Secondaries alongside a round. New investors in a funding round buy some shares from founders or early backers as well as new shares from the company.
• Fund secondaries. An investor in a venture fund sells its stake in the fund, or a firm moves companies into a new continuation fund. These do not involve employees directly.

How big the market is

PitchBook's 2025 Annual US VC Secondary Market Watch, published February 20, 2026, estimated the US venture secondary market at $106.3 billion for 2025. Of that, $91.7 billion was direct secondaries and $14.6 billion was GP-led fund deals. PitchBook stressed that the direct figure is the midpoint of a wide range, $62.5 billion to $120.9 billion, because private trades are hard to track.

The report estimated tender offers at about $18.4 billion. Tender offers hosted on Nasdaq Private Market alone totaled $13.2 billion, averaging $142 million each. Two well known examples from 2025:

Trading is concentrated. PitchBook cited data from the marketplace Hiive showing that the top 20 startups made up 86.4 percent of its secondary trading value in the fourth quarter of 2025. For most employees at smaller companies, there may be no buyer at all.

How a tender offer works

1. The company sets it up. It picks a buyer, often new or existing investors or the company itself. Then it agrees on a price per share.
2. Eligibility is defined. The offer says who may sell, such as current employees with a minimum tenure, former employees or early investors. It also sets how much each may sell.
3. Documents go out. Holders receive an offer document with the price, limits, deadlines and risk factors.
4. The window opens. Holders decide whether to sell. Larger tender offers generally must stay open for a minimum period under SEC rules.
5. The sale closes. Shares transfer, sellers are paid and taxes are withheld where required.

Companies like tender offers because they control the price, the buyers and the timing. Many pair them with a new funding round, which gives a price anchor. PitchBook noted that some startups now use tender offers to tidy up their cap tables, in some cases asking former employees to sell fixed portions of their holdings.

General rules employees face

Selling private shares is not like selling public stock. Expect several layers of rules.

Company restrictions

• Transfer limits. Bylaws and stock agreements often ban or restrict transfers without board approval.
• Right of first refusal. The company or sometimes its investors may buy the shares on the same terms before an outside buyer can. Our term sheet basics explain where these rights come from.
• Approved programs only. Some companies allow sales only through tender offers they run.
• No side deals. Many companies forbid forward contracts or other arrangements that promise shares later.

Securities law

Private shares are usually restricted securities. Resales must fit an exemption from SEC registration. Buyers are generally required to be accredited investors or institutions. Rule 144 sets holding periods and other conditions for reselling restricted securities. Employees also must not trade on confidential company information. The company's lawyers usually handle these questions in a tender offer; in a direct sale, the seller needs advice of their own.

Options versus shares

Stock options are a right to buy shares, not the shares themselves. To sell, you usually must exercise first, which costs money and can trigger tax. Restricted stock units often cannot be sold until they settle. Read your grant documents carefully.

Tax questions to raise

Tax treatment depends on the type of equity, how long you held it, how it was granted and where you live. Questions to bring to a tax professional include:

• Whether your options are incentive stock options or nonqualified options. Ask what exercising will cost in tax.
• Whether the alternative minimum tax could apply.
• Whether your gain would be short-term or long-term.
• Whether your shares might qualify as qualified small business stock under federal rules.
• How California treats the gain. The state taxes capital gains as ordinary income.

Some buyers also pay a price below the latest funding round. Tender offers may also be priced differently from the common stock's official 409A valuation. Ask how the price was set.

Who is on the other side

Secondary buyers include venture firms adding to positions, funds that specialize in secondaries, hedge funds, family offices and wealthy individuals. Some buy through marketplaces and others negotiate directly. Buyers often get less information than primary investors, which is one reason they may ask for a discount. For buyers, these are illiquid and risky investments; values can fall and there may be no exit for years.

A checklist before selling

1. Read your stock plan, grant agreements and the company's bylaws.
2. Ask the company whether sales are allowed and what approval is needed.
3. Confirm whether a tender offer is planned; it may be simpler than a direct sale.
4. Get tax advice on exercising and selling, including state tax.
5. Check the buyer, any platform fees and how the money moves.
6. Think about concentration. Many people in the area hold most of their wealth in one company's stock. Our home buying guide covers one common reason employees seek liquidity.

Frequently asked questions