A seller note is portion of acquisition consideration paid over time via a promissory note from buyer to seller — not cash wired at closing.

How it works

Deal structure might be 70% cash at close, 20% seller note, 10% escrow for indemnities. The note carries interest, maturity, and sometimes subordination to bank debt. If the buyer struggles post-acquisition, seller note holders may recover little — they are unsecured or junior creditors depending on terms.

Seller notes appear in private company sales, carve-outs, and lower-middle-market M&A. Venture exits occasionally include notes when strategics want risk-sharing or the seller believes in upside under new ownership.

Negotiation covers standstill covenants, acceleration on default, and security (rare for sellers). Tax timing differs from all-cash deals — sellers recognize gain as payments arrive under applicable rules.

Why it matters

• Founders: A higher headline price with a large seller note may be worse than lower all-cash proceeds after risk-adjusting delayed payments.
• Investors: Preferred holders and common founders share note economics per waterfall; board approval and fairness opinions may apply in larger exits.

Common mistake

Treating the face value of a seller note as guaranteed proceeds — buyer credit quality and integration risk determine whether you ever collect.

Related ideas

• Escrow
• Earnouts and contingent consideration
• Change of control