Earnout

TL;DR

A portion of acquisition consideration paid only if the acquired company hits specified post-close performance milestones over a defined period.

An earnout ties part of the acquisition price to future performance — revenue targets, product milestones, employee retention. Earnouts let acquirers pay less up front and protect against post-close performance issues, while letting sellers participate in upside they believe in.

In practice, earnouts are often contentious. Acquirers control the integration choices that affect performance metrics; sellers feel they don't get a fair shot. Most experienced sellers discount earnouts heavily when comparing offers — sometimes valuing them at zero.

Worked example

A $50M acquisition with a $20M earnout: $10M paid if the acquired product hits $8M revenue in year 1, another $10M if it hits $14M in year 2. Sellers must stay through year 2 and the metric definition is locked in the SPA — earnouts are notorious for litigation.

Common pitfalls

• Negotiating earnout metrics that the acquirer can manipulate.
• Failing to define termination terms for the earnout-eligible team.
• Letting earnout disputes disrupt post-close integration.

When this shows up in a pitch deck

Earnout structure is acquisition-negotiation content; not deck content.

Related terms

• Acquihire — An acquisition primarily motivated by the acquirer's desire to hire the target company's team, with little value placed on the product or revenue.
• Acceleration (Double Trigger) — A vesting acceleration provision requiring two events — typically a change of control AND involuntary termination — before unvested equity vests.
• Lockup Period — The post-IPO window — typically 90–180 days — during which insiders are contractually prohibited from selling their shares on the public market.
• IPO — Initial Public Offering — the first sale of a company's shares to public investors, transforming the company from private to publicly traded.
• SPAC — A publicly listed shell company that raises capital to acquire and merge with a private company, offering an alternative route to the public markets.

Use this in your next pitch deck

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