The Earn-Out Dilemma in Acquihire Deals

Earn-outs in acquihires seem like a smart move—tie payouts to performance and keep everyone aligned. But in reality, they can spark a mess of financial friction that unravels the deal.

The scope here is a classic headache: what starts as a motivator turns into a battleground over targets, timelines, and trust, threatening the talent retention that the acquihire depends on.

The trouble kicks in with lofty goals. Set ambitious revenue targets or fuzzy “strategic milestones,” and the team might feel set up to fail. When sales can’t deliver or metrics shift mid-game, frustration builds. The challenge is crafting earn-outs that inspire rather than alienate.

Timing adds another wrinkle. Stretch those payouts too far out, and impatience sets in—startup-minded talent isn’t wired for long waits. Every missed milestone chips away at confidence, and every delayed check feels like a broken promise.

It’s a tightrope walk between fairness and feasibility. Botch the design, and the acquihire doesn’t just underperform; talent walks away and the investment follows them out the door.