Escrow and holdback
An escrow or holdback is a portion of the price held back at closing for a period to cover indemnity claims.
In a sale
How much of an escrow comes back to the seller?
What comes back depends on claims: an escrow or holdback is set aside for a period after closing to cover claims under the purchase agreement, and returns to the founder less any claims made. It is part of the price that is agreed but not yet paid. Its size and length are best negotiated in the letter of intent, while several buyers are still at the table.
Where it comes up
Read it in context
In the articles
- Where founders leave money on the tableMost of what founders lose in a sale is lost in their own decisions, and each one has a fix.
- Same business, two outcomesTwo identical businesses, one prepared and one not, sell for very different prices.
- What an LOI is really sayingThe headline is one term of nine. Here are the other eight.
- When a buyer calls firstAn inbound offer is information, not a decision.
- Diligence yourself firstEvery business has issues. The question is who finds them.
- What the buyer's memo says about youBefore any offer, someone writes an internal memo. Here is what is in it.
- Structure is priceTwo offers with the same headline can differ by millions in what you keep.
In The FNDRS Playbook
- PB22 The leverage curveYour leverage peaks the day before you sign exclusivity. It never comes back.
- PB13 Headline vs. take-homeTwo offers with the same headline can differ by millions in what you keep.
- PB14 The consideration stackPurchase price is a stack of layers with different certainty and different timing.
- PB18 The earn-out design gridAn earn-out you cannot control is a price cut with extra steps.
See the terms with your own numbers
The Go-To-Market Analysis (GTMA) builds the file a buyer would build on your business, before a buyer does.