[gamblor956]

I work for a company that does a lot of acquisitions. Basically all of our acquisitions involve earnouts, and they're never a bad deal for the sellers. In many cases, without the earnout the deal doesn't happen because the price the seller wants is higher than we'd be willing to pay unless the continued performance of the business post-acquisition justified the higher price tag.

But whether earnouts are good or bad for sellers is industry specific. I don't work for a tech company, and we don't deal with VC or PE firms at all. Our acquisitions are all companies with real revenue streams, established histories of revenue, and non-tech business models that don't require exponential growth or "scale", so earnouts are extremely straightforward.

[pottertheotter]

All of the horror stories I've heard from others about earnouts involved "companies with real revenue streams, established histories of revenue, and non-tech business models that don't require exponential growth or 'scale'". There's so many ways that even the most "straightforward" of earnout terms becomes non-straightforward.

[gamblor956]

There's so many ways that even the most "straightforward" of earnout terms becomes non-straightforward.

There really isn't, if both parties are active businesses. If you look closely, you'll quickly realize that almost all of the horror stories involve private equity, because they ruin everything.

[gnicholas]

Yes, earnouts can help bridge a valuation gap — and if the buyer is reasonable/kind, then they can create a win-win scenario. The question is whether a seller can accurately identify whether their counterparty is reasonable/kind. This is the sort of thing that lawyers should be able to help with, since they're involved in many deals. But as mentioned above, they may have misaligned interests that cloud their judgment.