Earnout Escrow for California Tech Acquisitions
Earnout provisions allow buyers to pay part of the purchase price after closing based on future performance. An escrow account holds these funds securely while both parties verify that milestones are met.
Tech acquisitions in California often include earnouts. The buyer wants to pay less upfront and more later if the acquired company hits revenue targets. The seller wants assurance that the money will be available if they perform. An earnout escrow account bridges this gap. At Secured Trust Escrow, we administer earnout escrows for tech acquisitions throughout Los Angeles, Silicon Beach, and the Bay Area.
Structuring the Milestones
The escrow instructions define the earnout milestones. These might be revenue targets, customer retention rates, product launch dates, or user growth metrics. Each milestone must be objectively measurable. The instructions specify who verifies the metric, what documentation is required, and the deadline for verification. Vague milestones create disputes. Precise milestones create smooth releases.
Holding the Funds
The buyer deposits the full earnout amount into escrow at closing. The funds remain in escrow for the entire earnout period, which may be 12 months, 24 months, or longer. During this time, the escrow company maintains the account, provides periodic statements, and holds the funds according to the instructions. Neither party can access the money without satisfying the release conditions.
Verification and Release
When a milestone is achieved, the seller submits proof to the escrow company. The buyer has a specified period to review and either approve or dispute the claim. If approved, the escrow company releases the designated portion of funds. If disputed, the escrow company holds the funds until the parties resolve the dispute or an independent auditor verifies the milestone.
Dispute Resolution
Earnout disputes are common in tech acquisitions. The buyer may argue that the seller manipulated metrics by pulling forward revenue or deferring expenses. The escrow instructions should specify a dispute resolution process, including whether an independent accountant has final say and how quickly the escrow company must act on a determination. Without this language, disputes can tie up funds for months.
Tech Acquisition Earnout Escrow
Secured Trust Escrow administers earnout escrows for California tech acquisitions with milestone verification and dispute resolution.
About the Author: This guide was prepared by the escrow officers at Secured Trust Escrow, a California DFPI-licensed escrow company with experience in business holding escrow, relocation escrow, liquor license transfers, and mergers and acquisitions throughout Los Angeles, Torrance, and surrounding areas.
Legal and Regulatory Disclaimer: This article provides educational information about escrow services. It does not constitute legal, tax, or investment advice. Escrow transactions involve complex legal and financial consequences that vary by transaction type and individual circumstances. Parties should consult with qualified attorneys and tax professionals regarding their particular transactions. California regulations and market conditions change periodically. Last reviewed: July 2026.
