Who this is for: VC-backed founders thinking about an exit in the next one to three years.
You get paid from equity value, not enterprise value. Between the two sit debt-like items, minimum cash requirements, working capital adjustments, escrow, holdbacks and rollover equity.
The number that matters is net proceeds. Not the press release number. Not the banker slide. What arrives in your account.
Net proceeds is the real scoreboard
A smooth exit is rarely about squeezing the last turn of multiple. It is about reducing surprises in the bridge from headline price to cash at close.
That bridge is where founders lose leverage, especially once exclusivity has started and everyone is tired.
Cash-free, debt-free is standard. The definitions are not.
In theory the buyer pays for the business, you pay off debt, and the cash in the company belongs to you.
In practice, cash can be restricted, trapped in subsidiaries, or required for payroll and tax cut-offs. Debt can expand well beyond bank loans. Treat cash-free, debt-free as boilerplate and you will negotiate the most sensitive definitions at the worst possible time.
Debt-like items are where founders get surprised
Anything that behaves like debt in the deal, even if your monthly reporting never called it debt.
- Deferred revenue and customer prepayments
- Accrued bonuses and commissions
- Unpaid taxes and uncertain tax positions
- Outstanding rebates and credits
- Other non-interest liabilities still to be settled
The practical rule is simple.
If it is still owed, expect the buyer to argue for it.
Protect the bridge, then pick the buyer
If you protect the bridge to net proceeds, you can pursue the right buyer and the right structure without finding out at the end what you actually sold.
Frequently asked questions
Which number do founders actually get paid from?
Equity value, not enterprise value. Enterprise value prices the business; equity value is what reaches shareholders after debt, cash and the deal adjustments.
Is deferred revenue treated as debt in a sale?
Buyers commonly argue yes, because delivery still consumes cost and working capital.
How early should exit planning start?
From Day 1 when you start your business. But it will get clearer over time.
- The LOI trap: which terms quietly lock a seller in?
- High-touch or low-touch accounting: which one does your business need?
- Series A-ready isn’t a vibe. Here’s the evidence investors want.
- Earn-outs: help or hurt the seller?
- Working capital adjustment: the clause that quietly cuts your exit cheque
- Warranties, indemnities and disclosures: the clauses that decide your real exit
