Deal Structuring Primer: Cash, Equity, Earnout, and Debt

What founders really need to know when evaluating an offer

Founders often zero in on valuation, but how you get paid matters. Cash, equity, earnout, and debt all shape your experience post-sale.

The deal structure tells you a lot about alignment, risk, and control.

Here’s how I encourage founders to think about the core components:

Cash at Close = “The Past”

This rewards you for everything you’ve already built. It funds your next chapter, supports your lifestyle, and gives you peace of mind.

But pushing for every last dollar up front can come at the expense of flexibility elsewhere. It’s just one piece of the picture.

Rollover Equity = “The Future”

This is what you carry forward. It reflects how much you still believe in the business, and in the buyer.

Sellers often overlook this, but it can be meaningful. In my last deal, the seller rolled a small amount, advised longer than expected, and almost made more on the second exit than the first, despite holding a minority stake.

Earnouts = “The Gap Between Two Views”

Earnouts get a bad rap, but they aren’t meant to be offensive. They just acknowledge that buyers and sellers have different vantage points.

You know the business deeply. The buyer is still building conviction. Earnouts bridge that gap.

My advice:

• Keep projections realistic and don’t get trapped by stretch targets

• Tie earnouts to things you can reasonably predict (e.g., customer retention)

• Avoid earnouts tied to metrics you can’t control, such as profitability when you don’t own the spending decisions
  

Earnouts are about shared risk. Trust matters here more than anywhere..

Debt = “The Leverage Hidden in the Deal”

Debt should support growth, not drive returns. In software, where there’s little collateral, too much debt can choke momentum especially when growth matters most.

Private Equity often uses debt as a return lever. Banks may lend more than they should because they view the fund as a safety net. But if rates or markets negatively move, another company underperforms, your business bears the cost.

Putting It All Together

Here’s how I break it down with sellers:

• Cash = What you’ve earned

• Rollover = What you still believe in

• Earnout = Where you and the buyer see things differently

• Debt = Whether it supports growth or potentially squeezes the company

  
  

Understanding what each lever means helps you make the right decision for yourself.

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