Earnout
Definition
Earnout: An earnout is a portion of an acquisition price paid contingent on the acquired company hitting future performance targets. Earnouts bridge valuation gaps between buyer and seller expectations and incentivize founders to stay and perform post-acquisition.
Example Usage
“The $50M acquisition included a $20M earnout based on hitting revenue targets over two years.”
Common Misconceptions
Related Terms
Acquisition
An acquisition occurs when one company purchases another, either for cash, stock, or a combination. For startups, being acquired is a common exit path...
Exit
An exit is an event that allows startup investors and shareholders to convert their equity into cash. Common exits include acquisition by another comp...
Term Sheet
A term sheet is a non-binding document outlining the key terms of a proposed investment, including valuation, investment amount, board composition, li...
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