Earnout Escrow for San Diego Software Acquisitions

San Diego’s software scene lives in the long shadow of Qualcomm, but it is bigger than one company. Sorrento Mesa and Carlsbad are packed with SaaS firms, telecom software vendors, and defense adjacent developers. When these companies change hands, the deals almost always include an earnout. Buyers refuse to pay today’s price for revenue that might vanish next quarter, and sellers want credit for the growth they already built.

How an Earnout Escrow Actually Works

The buyer and seller agree on a total price, but part of it stays in escrow after closing. If the company hits its revenue or retention targets over the next one to three years, the escrow releases the earnout in scheduled payments. If it misses, the money adjusts according to a formula everyone signed before the deal closed. The escrow officer verifies the numbers against the written instructions and releases funds on schedule.

Drafting the Metric So Neither Side Can Game It

Most earnout fights are really metric fights. Define revenue recognition before closing. Say exactly how churned customers count. Decide who controls pricing and spending during the earnout period, because a buyer who slashes the marketing budget can sandbag the numbers. The more specific the instructions, the less room either side has to argue eighteen months later.

San Diego adds local wrinkles. Telecom software sellers often hold federal contracts that need consent before the earnout clock can even start. Defense adjacent firms bring clearance and export control questions. We covered the statewide mechanics in our guide to earnout escrow for California tech acquisitions, and the structures carry straight over. If you are buying or selling a software company in Sorrento Mesa or Carlsbad, Secured Trust Escrow can structure the hold before you sign the letter of intent.