Most founders focus on valuation first and legal terms second. This is understandable as valuation is the number in the press release, the number that validates the last several years of work.
But I've been involved in enough transactions to tell you this clearly: valuation is not the number that determines what you actually receive. The terms underneath it are. And many founders arrive at the table without a clear view of what those terms do.
Representations and warranties — what you're actually promising
When you sign a sale agreement, you give the buyer a set of representations and warranties: statements about the state of your business that the buyer relies on to proceed. If they are incorrect, you may owe significant money after completion.
Founders routinely accept this exposure without fully understanding its shape. The scope of the reps, the materiality thresholds, the time limits for claims, the aggregate and per-claim caps, and the disclosure letter all determine how much of the headline price you actually keep.
Consider: the headline number is $50M, warranty liability is uncapped and the disclosure letter is incomplete. So your reps may be wrong, or the disclosures incomplete and thus the reps false. You are liable for the loss — and uncapped, that is a lot. That is not a $50M outcome.
Treat the reps negotiation as seriously as the valuation negotiation, because the reps will determine what you actually keep.
Conditions to completion — and who controls them
Most transactions do not complete when signed. There's a gap during which conditions must be satisfied: regulatory approvals, third-party consents, financing conditions, board approvals.
Who controls whether conditions are met is where a lot of deal risk sits. A financing condition in a buyer-side contract is not a bilateral obligation. It's a buyer option to walk away.
Before you sign the agreement, get a clear view of the conditions you control, the conditions the buyer controls, and the consequences of non-satisfaction. Once you're in the condition satisfaction period, the leverage has already shifted.
The structure of consideration — cash, equity and what they're actually worth
The structure of the deal consideration matters as much as its headline value.
Cash at completion is straightforward. Equity in a listed buyer is worth the market price at completion, subject to trading restrictions and lockups. Equity in a private buyer is worth whatever the buyer turns out to be worth, whenever you can actually realise it.
A deal structured as cash, equity and earn-out is three different transactions with three different risk profiles dressed up as one number. Model each component separately before you agree to the structure.
Restrictive covenants — the price of the exit
Buyers routinely ask founders to sign non-compete and non-solicitation obligations as a condition of the deal. These are negotiable in duration, in geographic scope, in the activities covered and in their carve-outs.
A two-year non-compete in your specific sector, in a geographic area covering all activities related to your business, is a very different obligation to a twelve-month non-compete limited to direct competitors.
So what do founders do?
Valuation matters. I'm not telling you to ignore it. But founders who walk away having actually received their headline number — and retained the freedom to do something meaningful with it — are the ones who paid as much attention to the warranties, the conditions, the consideration structure and the restraints as they did to the price.