If you are negotiating an exit and wondering what market terms are then you should check out this survey from SRS. In contrast to Sarah Lacy who saw this as bad news for low level exits (or in her words ‘flip advocates’) I don’t think there is much in here that is surprising or bad news for startups.
My summary of the key findings is:
- You can expect a post closing adjustment for working capital, debt or cash – which is entirely reasonable (not that it wouldn’t be nice to negotiate it away)
- Earnouts are relatively rare – 25% of deals, and when they come revenues or milestones are the usual triggers – I’m not a big fan of earnouts – they are complicated to negotiate, hard to police, and don’t payout that often (a banker friend of mine says 50% is a good rule of thumb)
- The period in which the acquirer can make claims under the reps and warranties is rarely longer than eighteen months
- Escrow holdbacks are rarely more than 15%
If you read the survey you will see that SRS’s summary is a little different. Maybe their’s is designed to shock a little.