Tender Underpricing Transfers Upside to Insiders
Tender Offers in 2021: Underpriced and Undersubscribed
Tender underpricing is less a random employee tax than a structural transfer of upside to insiders and invited buyers. In practice, the price is usually anchored to the last primary round, even when the company has grown materially since then, so employees sell common shares at a stale price while investors get scarce pre IPO exposure. That is why low participation is rational, not confusing, especially at fast growing companies like Snowflake and Unity.
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Across 64 tender offers and more than $3B of volume, 83% were priced at or below the last round, and the ratio clustered at 1 to 1 with that round price. The convenience of using the last primary price becomes a discount whenever business progress between rounds is not repriced.
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The mechanism itself pushes toward underpricing. Most tenders are closed door, issuer controlled transactions with existing investors or a small invited set of buyers, and pricing is often set off the back of a primary round. That preserves company control, but it weakens true price discovery.
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Employees respond exactly as expected when the discount is obvious. Less underpriced tenders saw roughly 30% to 50% participation, while more severely underpriced tenders fell to roughly 10% to 30%. Recurrent liquidity programs matter because they reduce the pressure to accept a single bad price.
The market is heading toward more frequent, more transparent private liquidity, where pricing comes from repeated transactions instead of an old funding round. As companies stay private longer, the winners will be the ones that treat liquidity as ongoing market infrastructure, because that improves recruiting, cap table management, and eventually the path into public markets.