Exits & Liquidity
Earnout Milestone
A specific performance target that must be achieved post-acquisition for sellers to receive additional contingent consideration.
An earnout milestone is a defined, measurable performance target embedded in an acquisition agreement that triggers additional payments to the selling shareholders if achieved. Common milestones include revenue targets, customer retention rates, product launch deadlines, or technology integration benchmarks, measured over a specified period (typically 1-3 years) following the acquisition close.
In Practice
The $200M acquisition included a $50M earnout tied to three milestones: maintaining 90% customer retention for 12 months ($15M), hitting $40M ARR by month 18 ($20M), and successfully launching the enterprise product by month 24 ($15M).
Why It Matters
Earnout milestones bridge valuation gaps between buyers and sellers. They're common in venture-backed acquisitions where future performance is uncertain. However, they can create perverse incentives if not carefully structured.
VC Beast Take
The dirty secret of earnouts is that they often lead to disputes. Acquirers can manipulate operations to prevent milestone achievement (underfunding the acquired team, redirecting customers, or changing accounting methods). Strong earnout provisions include operational covenants that protect sellers from such manipulation.
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