Forgivable Seller Notes

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February 24, 2026

by a searcher from Harvard University - Harvard Business School in Austin, TX, USA

Considering using forgivable seller note in a capital structure to mitigate risk/bridge valuation. Would love to hear from folks who have used - what timeline and metrics did you use for forgiveness triggers? what went well and what didnt?
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commentor profile
Reply by an investor
from University of Puget Sound in Seattle, WA, USA
I think this may be a tough pitch to most sellers (especially if it's anything related to earnings or operational efficiency). I know someone who tried this for key customer accounts, but their deal ended up falling through. I had a lot of issues with a key supplier after one of my deals closed (that supplier used the transaction as an excuse to renegotiate since they held all the leverage)--I feel like something related to suppliers/vendors would've been an easier sell and smart move on my part (even if rejected, it'd at least uncover any uneasiness they might've had with specific vendors).
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Reply by a searcher
from University of Houston in Houston, TX, USA
In the accounting world, it generally looks like 90% of revenue for the 1st 12 months. Reduction of seller note dollar for dollar below that. Your seller note should be of meaningful size for this clause to be actually effective.
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