Ep 561 The $40M Earnout That Never Got Paid, and the One That Did - Rob Walling and Garren Hilow

Broadly speaking, there are two ways to build a company. Some entrepreneurs swing for the fences, spending decades building one big business. Others play for singles, building a series of smaller companies they can sell and repeat.  Stuart Faught has made a career of the second approach.  He has started and sold 20 software businesses, making him the number-one seller on Acquire.com. His model is deliberately small: build a simple tool for a niche of local businesses, grow it to $50K to $100K in annual recurring revenue, sell it for four to five times that, and move on to the next one. 

Garren Hilow bootstrapped Abveris, an antibody discovery business doing $12 million in revenue, and sold it in 2021 for $150 million up front with another $40 million available in an earnout. His team came within one percent of the revenue target. The acquirer said they had missed it, refused to share the accounting behind that conclusion, and dared him to sue.  Rob Walling sold Drip with 40 percent of his purchase price tied to an earnout and collected all but a fraction of it.  In this episode of Built to Sell Radio, John Warrillow puts the two founders side by side to work out what actually separated the two outcomes, and you discover how to negotiate an earnout you have a chance of collecting.  You'll learn:  Why a revenue-based earnout hands the acquirer the calculator, including the right to change how your revenue is recognized partway through the year  Walling's ranking of earnout milestones from worst to best, and the one type he tells founders to refuse outright  Why taking more cash at close makes an acquirer less likely to fight you over the back end  What a private equity buyer admitted over dinner about how often his firm plans to replace the founder  The reporting clause Hilow left out of his agreement, and what its absence cost him  How old Slack messages and a verbal instruction to work from home became grounds for a termination with cause  Why an acquirer who intends to fold your company into theirs should not be offering an earnout at all 

Dane Pan and his wife built Monet Brands to $1.3 million in revenue with two employees, selling a $24.99 skincare tool that cost them $6.10.  When they took the company to market in 2025, nine buyers cleared the proof-of-funds screen and four of them wrote an LOI. The best offer came in close to four times SDE with a holdback attached. Dane countered for all cash at close, watched two of his four offers disappear, and signed at 3.6

One of the fastest growing groups of acquirers is the self funded searcher. A searcher is not a competitor nor a private equity group. A searcher is usually one person, often recently out of an MBA program, who puts ten to twenty percent down from personal savings, borrows the rest from a bank, often asks the owner to finance part of the purchase price, and signs a personal guarantee for the debt.  Owners find searchers appealing for good reasons. They may pay your asking price, and they promise to look after your employees rather than fold them into someone else's operation.

In 2016, Janessa White and her business partner started Simply Eloped, a marketplace that planned elopements and small weddings for couples in 35 cities across the United States. They also decided, before they had a single customer, which company they wanted to sell it to. The Knot Worldwide, the largest wedding platform in the world.  Over the next seven years, White told The Knot exactly that, met with their corporate development team every quarter for four years, and shared her revenue and margins with them along the way. When she finally emailed to say she was ready, the letter of intent arrived within a week.

There are four types of financial buyers who might make an offer on your business, and more often than any other type, the one approaching you is an independent sponsor. It is an unhelpful label for a group that raises the money for a deal only after the seller has signed an LOI, which is also when the seller's leverage is at its lowest.  Travis Jamison runs Capital Pad, where investors fund independent sponsor deals. He sees dozens of them for every one he approves. Independent sponsors are now behind roughly 28% of lower middle market acquisitions, which is more than traditional private equity does. 

One day, you're going to sell your business, and when you do, you'll experience a step function increase in your net worth. Navigating that moment is something Adam Katz has spent his career helping owners do. He spent twenty years at Merrill Lynch as a Private Wealth Advisor to ultra high net worth families before he and his team left in 2018 to build KORE Private Wealth, an independent firm that grew to five billion dollars in assets. Just four years later, they sold. His new book, Making the Zeros Count: A Field Guide for Decamillionaires, Centimillionaires, and Billionaires, distills what he's learned into a playbook for owners who come into sudden wealth.  Katz says the greatest benefit of wealth isn't what it buys. It's the freedom of never needing anyone again. Not your clients, not a boss, not a buyer. He argues that kind of independence is impossible to understand until you're on the other side of the deal, which is why, even after decades of coaching founders through liquidity events, he admits he is still adjusting to it himself. 

If you own a company, chances are you're its best salesperson. Put you in a room with a prospect and you rarely lose. But listen to your employees try to tell the same story and something gets lost. You've tried hiring salespeople. You've tried training them. The selling keeps landing back on your shoulders, and when it comes time to sell, an acquirer will see it too. Expect an earn-out or an equity rollover, golden handcuffs designed to keep the rainmaker locked in.  Here's what most owners miss: you have a built-in advantage no salesperson can replicate. Your founder story defines the enemy, the problem, and why you built something better, and you tell it instinctively because you lived it. A new rep who tries to recite your story will sound like a fraud. The fix isn't better sales training. It's giving your team professional positioning, and nobody on the planet knows more about positioning than April Dunford. She spent 25 years as an executive at seven B2B technology startups, companies that were acquired for a combined total of more than two billion dollars, and her books, Obviously Awesome and Sales Pitch, are the standard playbooks for explaining why customers should pick you over the competition.

Jeff Church co-founded Suja Juice in 2012 with $300,000 and a green juice that had a four-day shelf life. Within three years, the company hit $70 million in revenue, and Coca-Cola and Goldman Sachs invested $150 million at a $300 million valuation. Then, two weeks after Coke flew its entire North American management team to Suja's plant, they passed on the option to buy the rest of the business, leaving Jeff with $40 million in maturing debt and a company losing $9 million a year. 

More owners than ever say they are simply tired. A look at 10,255 PREScore™ assessments over six years found that 17.5% pointed to burnout, not retirement, as the number one reason they want out.  So the question went to two people who spend their days on the buy side, valuing companies and deciding what to pay. Lee McCabe is a private equity veteran who advises PE firms on the businesses they acquire. Jason Swenk built marketing agencies and spent time acquiring them. In this episode, you discover how to tell whether burnout is a signal to sell or a problem worth fixing first, and how a buyer prices the difference either way.