Deal StructureValuation
The Earnout Mirage
Also known as: Earnout illusion, conditional payment trap
TO-original framework. The earnout looks like real consideration. In practice, the buyer controls targets, measurement, and business decisions — making the stated amount and the actual payout two different numbers.
WHY IT MATTERS
Introduced in D.7 (The Earnout Mirage). The earnout looks like money on the table. The buyer controls the targets, the measurement, and the business decisions that determine the outcome. The number on the page and the number on the wire are two different things. In the Crossfield deal, $12M in earnouts paid out $2.8M — a 23% recovery rate. Nobody lied. Nobody breached the contract. The structure worked exactly as designed: no committed funding, buyer-controlled EBITDA calculations, revenue redirected to affiliates, and dispute mechanisms the founders couldn't afford to use.