Why might a cumulative earnout be less appealing to sellers?

A cumulative earnout structure often defers payments to the end of the agreement period, which can create significant uncertainty for sellers. Under this arrangement, sellers do not receive any payments until certain performance criteria are met, which can take time. This delay can be problematic for sellers who require immediate capital or cash flow after a transaction.

Additionally, this payment structure ties the seller's financial gain to the future performance of the business or assets being sold, which can be unpredictable. Sellers may feel anxious about whether they will actually receive the promised payments and how the business will perform during the interim period. As a result, this lack of immediate financial return can make cumulative earnouts less appealing compared to other structures that offer more timely compensation.