The Earnout Trap in Startup Acquisitions

Episode notes

When a startup gets acquired, the headline price often includes earnouts—contingent payments tied to future milestones. This episode unpacks why earnouts are increasingly common in 2026's M&A landscape, using the recent case of a well-known AI startup acquisition where founders lost millions because earnout targets were missed. Lucas explains how earnouts shift risk from buyer to seller, why venture-backed startups often accept them despite the odds, and what the fine print—like revenue thresholds and retention clauses—really means. Luna pushes back on whether earnouts are ever fair, and the hosts discuss how founders can negotiate smarter. With today's data showing a 9% one-week jump in the ARK Innovation ETF, the conversation connects earnout structures to the broader trend of acquirers demanding proof of growth post-deal. A focused, practical look at a term sheet clause that's quietly reshaping acquisition outcomes.