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Selling Your Technology Company for Maximum Value: A comprehensive guide for entrepreneurs by Rupert Cook

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13: Working Out The Earnout

If you want to avoid a lot of post-completion paperwork, monitoring and often heartache, then try and avoid agreeing to an earnout. In general the simplest deals are best and the simplest type of deal is where you exchange contracts, complete the deal and the acquirer remits all of the purchase price to your bank account, all on the same day. If the earnout is not a large part of the deal, it will often pay off to try and increase the upfront payment a little, while giving up a small part of the overall consideration, in order to avoid an earnout altogether. Performance-based earnouts are difficult to control once you are no longer running the business, and are difficult to provide for effectively in the SPA.

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