Earnout
Definition
An earnout is a portion of acquisition consideration paid only if the acquired company hits agreed post-close targets, such as revenue or retention milestones.
How it comes up in fundraising
Acquirers use earnouts to bridge valuation gaps; founders should treat earnout value as at-risk, since hitting targets inside another company is partly outside their control.
Frequently asked questions
Are earnouts usually paid in full?
Often not; integration changes, resource decisions, and target design all affect outcomes, so negotiate objective metrics and control provisions.
How long do earnout periods run?
Commonly one to three years after closing.
Related terms
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