Unlocking Wealth Case Study: Tweet Hunter - an earn out that WORKED

What’s the best structure to sell your business? What’s the value of immediate cash versus a fully priced exit over a longer time frame?

Of all the sale structures I’ve mentioned previously, obviously the best case scenario is 100% cash up front, but that’s not always realistic, especially in services sectors. I’ve said before that it’s usually good to be wary of structures that involve an earn out - where part or all of the payment is based on future performance with you staying in the company.

Usually it requires too much delayed gratification after already spending years on growing the business, the financial goals are often unrealistic, and it’s difficult for someone with an entrepreneur’s mindset to become an employee.

However, there are absolutely examples of earn outs working, and today we’ll dive into one that turned a two million dollar sale into ten million.

Tweet Hunter is a service that turns X and Linkedin followings into leads and sales. It was founded as a collaboration between software engineers Tibo and Tom and influencer JK Molina, with shareholding split between them.

Revenue grew organically and within 3 years of founding, acquirers were circling.

The structure offered was slightly complicated. There would be a $2m initial price, up-front payment to any shareholder who wanted it, but those who stayed on would be able to access a staggered payment schedule that brought the valuation up to $10m if certain revenue and profit metrics were hit.

All three took the deal, but in different ways.

JK Molina took the money-up-front option, the other founders took the earn out and stayed in the company. The catch? Tweethunter exploded in revenue after the acquisition.

JK had his time freed up and I’m sure he’s a very happy man, but Tibo and Tom, with all the new capital and systems from their new private equity owners, were able to scale the revenue to $8m and within just 18 months had completed their entire earnout. quadrupling their exit fees.

The lesson here is that although we all want clean exits, sometimes it really is better to keep some skin in the game if you have the right partner. Just make sure you take at least some cash off the table before an earnout as a hedge.

If anyone in the community has done an earn out like this before, please share! We’d love to feature you in a future edition!

Here’s to your next deal,

Unlocking Wealth Weekly Team