The Funnel, Ep. 12: What's An 'Earn-Out' and Should You Agree?
An earn-out is a portion of the purchase price that is paid after closing, based on future performance.
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Show Notes
Once you reach the bottom of the funnel, the conversation shifts from whether you’ll sell to how the deal will actually be structured. This is where specific deal terms start to matter—sometimes more than headline price.
One of the most common and most misunderstood of those terms is the earn-out. It often shows up in a Letter of Intent and can look attractive on the surface. In reality, it’s one of the most important areas where founders need to slow down, understand the tradeoffs, and be clear-eyed about risk.
This episode explains what an earn-out really is, why buyers propose them, and how to think about whether agreeing to one makes sense in your situation.