An escrow holdback is a portion of acquisition proceeds held in a third-party escrow account for 12 to 24 months after closing. Also called an escrow, the funds are available to cover potential indemnification claims by the buyer for breaches of representations and warranties, working capital adjustments, or other deal protections, and released to sellers at the end of the survival period if no qualifying claims have been made. It is the most-common mechanism for backing seller indemnification obligations and the structure that determines when founders actually receive their full proceeds.
The standard structure: escrow size is typically 5 to 15 percent of deal value (sometimes higher for deals with significant risk areas, o...