M&A Earnouts for VC-Backed Companies

About the Episode

Learn how to bridge the price gap when selling your company without losing control of your future payments. This episode reveals why you should never rely on verbal promises and how to lock in your earnout through ironclad legal protections. Discover the secrets to maintaining your budget and team after the deal closes so you actually get paid every dollar you deserve.

You can’t rely on the warm and fuzzy things the buyer is telling you about how well you’re going to work together and how much they believe in your company. If you want the earnout, you need to negotiate within the four corners.

David Siegel

What You’ll Learn

• Prioritize the Written Purchase Agreement: Never rely on verbal promises from a buyer during the sale process. Your only real protection exists within the four corners of the legal contract, so ensure every performance metric is clearly defined before signing.
• Verify the Guaranteed Closing Payment: Only accept an acquisition offer if you are satisfied with the cash amount delivered at the closing table. You should treat an earnout as a bonus because future market shifts or buyer mismanagement could prevent you from ever seeing those funds.
• Secure Your Post-Closing Operating Budget: Demand a specific budget and resource guarantee in your contract to ensure you have the tools to hit your financial targets. Without a locked-in fund for sales and development, a buyer can easily starve your division of the cash needed to trigger your performance payments.
• Demand Operational Control Protections: Negotiate for the power to manage your team and strategy even after you sell the business. If a buyer reassigns your top talent or changes your product direction, you need specific clauses that deem your goals met or trigger an immediate payout.
• Fight for Terms in the Letter of Intent: Finalize your earnout structure and payment criteria during the initial negotiation phase rather than waiting for the final documents. You lose almost all your leverage once the letter of intent is signed, so push for detailed payout formulas while the buyer is still competing for your deal.

Topics Covered

Want More? Related Resources:

• Earnouts When Selling or Buying a Business | Complete Guide
• Negotiating an M&A Purchase Agreement | M&A Tips
• M&A Reps & Warranties | A Complete Guide

Meet Our Guest

Mital Makadia

Partner at Grellas Shah | Cupertino, California

Mital Makadia is a Partner at Grellas Shah, where she focuses on representing technology startups and startup founders. She provides counsel on a variety of corporate and transactional matters and negotiates and structures equity financing, M&A transactions and commercial and intellectual property transactions for her clients.

LinkedIn: https://www.linkedin.com/in/mital-gondha-makadia-11a87334/

Meet Our Guest

David Siegel

Partner at Grellas Shah | Santa Clara, California

A Partner at Grellas Shah, David Siegel is an unusual startup lawyer in having done sophisticated legal work in both transactional and litigation matters. He is an accomplished startup lawyer and litigator who has extensive experience in handling a broad range of corporate, transactional, and intellectual property matters, including work on multi-million dollar financing and acquisitions. This is all in addition to having a deep expertise in handling complex intellectual property, corporate and commercial litigation matters.

LinkedIn: https://www.linkedin.com/in/david-siegel-a271265/