A portion of acquisition proceeds, typically 25–50%, held back and paid only if the acquired company hits agreed milestones after the deal closes.

Why does Earn-out matter to a founder?

An earn-out moves risk from the buyer to you. The headline price includes money you have not received and may never receive, and whether you hit the milestones depends on decisions the acquirer controls after closing: headcount, roadmap, sales priority. Founders who negotiate only the price and not the earn-out's protections routinely collect far less than the announced number.

What are the common mistakes with Earn-out?

Treating the headline price as the deal when a quarter to half of it is contingent. Signing milestones without contractual funding for the team and roadmap needed to hit them. Leaving early without checking how the non-compete binds you for the years that follow. Accepting earn-out structure when the real fix was diversifying customer concentration before the sale.

Earn-out

CONCEPT · LAST REVIEWED 2026-09 · SOURCED FROM 1 SESSION, SEP 2026

An earn-out is the part of an acquisition price you have to keep earning after you’ve sold. The acquirer pays part of the proceeds at close and parks the rest, typically 25–50%, against milestones: revenue targets, product deliveries, retention of key people. Hit them and you collect; miss them and the money stays with the buyer.

Why it matters

Earn-outs move risk from the buyer to you, and the milestones depend on choices the buyer makes once they own the company. If the acquirer deprioritizes your product, cuts your team, or folds you into a larger unit, your targets can become unhittable through no fault of yours. The exit advisor in the session has a name for it:

From the room

“In an earn-out they’re going to park twenty-five or fifty percent of the total proceeds to you hitting particular milestones. And the critical piece there is… in our industry we call it starving the earn-out.”

— Three-exit founder who now runs an exit-readiness advisory · session, Sep 2026

Large acquirers have done this repeatedly: buy a company, decide it is no longer the product they want to back, and the earn-out goes to zero. The defense is contractual: negotiate the funding for your team and product roadmap into the deal so the buyer cannot starve the earn-out without paying you anyway.

Where founders get it wrong

Treating the headline price as the deal when a quarter to half of it is contingent.
Signing milestones without contractual funding for the team and roadmap needed to hit them.
Leaving early without checking how the non-compete binds you; one founder in the room’s circle left his earn-out and spent two years locked out of the work he loved.
Accepting earn-out structure when the real fix was diversifying customer concentration before the sale. Above 25% revenue from one customer, buyers move from all-cash to earn-out almost by default.

Numbers from the room

Figure	Value
Typical holdback	25–50% of proceeds
Customer concentration that triggers earn-out structure	Above ~25%
Cash alternative cited	A $157M all-cash sale that resold for $80M three years later

Go deeper

Running the exit process covers payout vs. earn-out, negotiating your own package before close, and why structure beats price.
Related concepts: Letter of intent, Customer concentration, Strategic vs. financial buyer.