37 - Deal Structures XO Capital's Fund Stuff

Andrew from XO Capital discusses common deal structures in business acquisitions, focusing on all-cash offers and escrow use. He highlights the challenges of using escrow.com, especially for software acquisitions, and details the process of asset transfer and payment release in escrow scenarios. Andrew explains their approach to small deals without escrow.com to save fees, based on trust, especially with U.S.-based parties.
He then talks about seller financing, debunking exaggerated claims on social media, and outlining realistic terms like 80-90% cash upfront with 10-20% seller financing over one year, usually interest-free. Andrew also shares his experience with SBA loans for SAS acquisitions, emphasizing the difficulty of securing these loans and the need for a clean P&L and a patient seller.
The podcast covers other deal structures like earn-outs and turnouts, explaining why earn-outs are impractical for small deals and introducing the concept of turnouts, where payment varies based on revenue retention. Equity earning, another structure, is briefly mentioned but not commonly used by XO Capital due to their investment strategy.
Andrew advises keeping deal structures simple to avoid seller confusion and fatigue, and concludes with negotiation tips, emphasizing the importance of understanding the seller’s price range to find a mutual agreement zone.