Private Equity
Secondary Tender vs. IPO Horizon
Your private company shares can be sold now at a discount. Is that cash worth more than waiting for an exit that may not come?
A tender offer is cash now at a discount; waiting is an illiquid bet on an exit that may not happen. Both are priced after tax, in dollars you could spend today.
What this calculator answers, what you need, and what to do with the result
Have this in front of you
- The offer: price per share, how many shares it covers, and the deadline to accept.
- Your grant documents: strike price, vested shares, and the date you acquired them.
- The last headline valuation, so you can see the discount being asked of you.
Words on this page, in plain English
- Tender offer
- A private buyer offering to purchase shares before any IPO, usually below the last announced valuation.
- QSBS
- Qualified small business stock. A rule that can make the gain tax-free if you held the shares long enough and the company qualified.
- Present value
- What a future payout is worth today, after discounting for the wait and for the chance it never arrives.
What to do with the answer
- 01Check the acquisition date against the five-year QSBS clock before accepting anything. A sale can reset it.
- 02Ask the company for the current 409A price. The tender discount only means something against that number.
- 03Size the position against your total savings. A 20% discount is not compensation for a stake you cannot sell.
Portfolio capital · secondary liquidity
Secondary Tender vs. IPO Horizon
Price a tender offer against the exit you are actually waiting for: after-tax cash today, discounted and probability-weighted proceeds at IPO, and the IPO price at which holding breaks even.
01The position
02The exit you are waiting for
03Tax profile
Cashless exercise: the strike is netted from proceeds and the spread is taxed as ordinary income (NSO treatment; ISO/AMT is out of scope). A failed exit is $0 on the hold path. QSBS applies only to owned stock held five years, capped at the lesser of $10M or 10× basis. State tax is folded into the rates you enter; this is a deterministic model of the arithmetic, not tax advice.
Method
How this number is calculated
- 01
Cash today, after tax
Shares times the offer price, minus the exercise cost, minus tax on the spread. Options are treated as non-qualified, so the spread is ordinary income.
- 02
The hold path at exit
Shares times the expected IPO price, minus exercise, minus tax at capital gains rates where the shares would be long-term, with any QSBS exclusion applied only inside the statutory caps.
- 03
Discount the hold, weight the odds
The exit value is discounted back at an annual rate and multiplied by the probability of that exit. The downside case is zero, because a private position with no exit has no market.
- 04
Break-even exit price
Solve for the share price at which the risk-adjusted hold equals today cash. Comparing that price with what you actually expect is the decision, rather than comparing the offer with the last round.
Assumes a cashless exercise and NSO treatment. ISO and AMT treatment, secondary-market haircuts for preferred versus common, and company-imposed transfer restrictions are out of scope.
Worked numbers
Pre-computed scenarios
20,000 options with a 2 dollar strike, an 18 dollar offer against a 24 dollar last round and a 40 dollar expected IPO price, 37% ordinary and 23.8% long-term rates, 12% discount rate. Only the exit odds and the time to exit change.
| Scenario | Inputs | Outcome |
|---|---|---|
| Slow exit, unlikely | 40% exit chance · 36 months · $18 offer vs $40 expected | $201,600 today vs $136,320 risk-adjusted hold — take the secondary; break-even IPO price $58 |
| Two-year exit, coin flip | 55% exit chance · 24 months · $18 offer vs $40 expected | $201,600 today vs $209,933 risk-adjusted hold — hold for the ipo; break-even IPO price $38 |
| Near-term exit, likely | 75% exit chance · 12 months · $18 offer vs $40 expected | $201,600 today vs $320,625 risk-adjusted hold — hold for the ipo; break-even IPO price $26 |
Questions
What people ask before trusting this number
Why is the hold path worth nothing if the company does not exit?
Because that is the honest downside for private stock. A secondary offer usually exists because the company is not public and the shares cannot be sold elsewhere. Assuming a failed exit still recovers a fraction of the last round would make holding look better than it is.
What is the break-even IPO price?
The share price at which the after-tax proceeds of waiting equal the cash you could take today. If you think the eventual price will be below it, the offer is the better trade on arithmetic, whatever your view of the company.
How is the discount on the offer calculated?
Offer price against the last preferred round, shown as an effective discount. A 24 dollar round and an 18 dollar offer is a 25% discount. That discount is partly the buyer pricing illiquidity and partly the market pricing the odds of a worse outcome.
Does QSBS change the answer?
It can remove federal tax on a large part of the gain, but only if the shares qualify, have been held at least five years, and the gain fits the statutory cap of the greater of 10 million dollars or ten times basis. The model applies the exclusion only when those conditions are met.
Why value the hold at a discount rate?
Because a dollar two years from now is not a dollar today, and private stock carries more risk than a public position. The implied probability needed to justify holding is the cleanest read: it tells you what odds the current prices already assume.
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