VC & PE Glossary
What Is Seller Note?
Updated
Definition
A seller note is deferred purchase price in an acquisition — the buyer owes the seller a promissory note for part of the deal value, paid over time with interest rather than all cash at closing.
Useful for: Founders, Investors
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
Last updated:
Editorial note: AI tools assisted with research, structure, or drafting. Venture Capital Tracker retains human editorial responsibility for factual accuracy, relevance, and source quality before publication.
Common questions
Short answers for founders, LPs, and operators