October 26, 2026
Between the LOI and closing, the buyer finishes diligence and sends the first draft of the merger agreement, and while both sides negotiate it your team builds the disclosure schedules and lines up approvals, consents and the funds flow. For a clean venture-backed company with no regulatory filing, that often takes about 45 to 90 days, and longer when diligence turns up problems or a consent is slow. Founders often give up money here, through small concessions made under time pressure, so run it like a project with a deadline.
Key takeaways
Most venture-backed startups are sold through a reverse triangular merger, so this page uses merger terms, but the steps are similar in a stock or asset sale. See Startup Acquisitions: The 3 Types of Deals and How a Sale Works.
| Phase | Typical timing after the LOI | What happens |
|---|---|---|
| Exclusivity starts | Day 0 | Diligence request list arrives, data room opens |
| Diligence | Weeks 1 to 6 | Legal, financial, tax, technical and employee review |
| First draft | Weeks 2 to 4 | Buyer's counsel sends the merger agreement |
| Negotiation and schedules | Weeks 3 to 10 | Revised drafts and disclosure schedules |
| Signing | Weeks 6 to 12 | Board approval, stockholder consent, key employee offers |
| Closing | Same day as signing, or once conditions are met | Consents, payoffs, funds flow, wires |
| After closing | About 2 to 4 months, then 12 to 18 months | Working capital true-up, then escrow release |
These ranges are common, not promised. A deal large enough to need a Hart-Scott-Rodino filing must wait out a waiting period, normally 30 days after filing, and a foreign buyer may need national security review, so either one opens a gap between signing and closing.
Once you sign the no-shop, you can't talk to other buyers, and every week of diligence costs you runway while every finding gives the buyer a reason to ask for something. Exclusivity commonly runs 30 to 60 days, and when it expires without a signed deal the buyer usually asks for a short extension that's hard to refuse if no other buyer is waiting.
So the LOI is where you settle the terms you won't win back: how working capital is measured, the escrow and whether it is the buyer's only recourse, and what founders and key employees must sign. Then put the process in writing: a target signing date, a date for the buyer's first draft and a weekly deal call, with extensions granted only against milestones. See How Do I Read an Acquisition LOI?.
The buyer's counsel almost always writes the first draft unless you are running an auction. That draft becomes the baseline, so read it for what it changes from the LOI. Four areas move the most money.
The definitions that set the price. Each item a buyer adds to "Indebtedness" or "Transaction Expenses," such as accrued bonuses, pre-closing taxes or, in some drafts, deferred revenue, reduces the price dollar for dollar. Attach a sample working capital calculation using agreed accounting principles.
The closing conditions. Push for no financing condition, a narrow material adverse effect definition, a key employee condition with a short list and a threshold below 100%, and an outside date after which either side can walk away. See What Happens to My Employees in an Acquisition?.
The indemnity. The escrow size, survival periods, basket, cap and fraud definition decide how much of the price you keep. See Escrow, Holdbacks and Indemnification.
What stockholders who don't sign must accept. In Cigna Health and Life Insurance Co. v. Audax Health Solutions (2014), the Delaware Court of Chancery refused to bind a stockholder who hadn't signed a support agreement to a release first introduced in the letter of transmittal, because the stockholder got nothing new for it, or to an indemnity with no cap and no time limit. Buyers respond by asking major holders to sign support agreements and by writing caps and time limits into the merger agreement. Make sure your own exposure is several rather than joint, pro rata, and capped at what you receive.
The disclosure schedules list the exceptions to the company's representations and the details they ask for: every material contract, registered IP, option grant and claim. The company prepares them with its counsel, and most answers come straight from the data room. See Startup Due Diligence.
The schedules are your protection. A problem disclosed on a schedule is one the buyer accepted, while a problem left off becomes an indemnity claim against the escrow. Disclose broadly, ask that a disclosure in one section count wherever its relevance is reasonably apparent, and resist a special indemnity for anything disclosed. Since 2024, Delaware law has said that disclosure schedules aren't part of the merger agreement for statutory purposes unless the agreement says otherwise, so they don't have to go to stockholders with the agreement, but they still have the effect the agreement gives them.
Start them the week the LOI is signed, with one owner per section, and expect the buyer to resist letting later updates cure a breach.
Many private startup deals sign and close on the same day. When there is a gap, you must run the business in the ordinary course and get the buyer's consent before issuing stock or options, raising pay, taking on debt, signing or ending major contracts, or settling claims.
Take those covenants literally. In AB Stable VIII v. MAPS Hotels and Resorts One (2021), the Delaware Supreme Court held that a seller that made major operating changes without first asking for consent, which the buyer couldn't unreasonably withhold, breached its ordinary course covenant, and the buyer was excused from closing. Negotiate a list of pre-approved actions, such as planned hires and their grants, and deemed consent if the buyer doesn't answer within a few business days.
The board adopts the merger agreement and declares it advisable. Delaware law then requires approval by holders of a majority of the outstanding stock entitled to vote, plus any separate class vote your charter gives the preferred. Startups get it by written consent rather than a meeting, and buyers usually require consents and support agreements from enough holders to approve the deal at signing or, often, within 24 hours after. See What Do Stockholders in My Startup Need to Approve?.
Everyone who didn't sign then gets prompt notice of the action. For a merger, that notice goes to nonvoting holders too, because a merger meeting would have required notice to every holder. Stockholders who didn't consent are told that appraisal rights are available, with a copy of Delaware's appraisal statute or a link to it, either before the merger takes effect or within 10 days after, and they have 20 days from that notice to demand appraisal. Companies usually send all of this in an information statement covering the deal, the price per share in each class and the interests of directors and officers, including founder packages. It isn't a statutory form. It is how directors meet their duty to disclose all material information, including what holders need to decide whether to seek appraisal.
Holdouts are what the drag-along is for, and in Manti Holdings v. Authentix Acquisition Co. (2021) the Delaware Supreme Court enforced an advance waiver of appraisal rights in a stockholders agreement signed by sophisticated holders who had counsel and bargaining power. A drag-along only works if you follow its conditions, and buyers often add a closing condition limiting how many shares can demand appraisal. See Drag-Along Rights.
The golden parachute vote. Under Section 280G, if deal-related payments to someone who works for the company and is an officer, a more-than-1% stockholder or one of its highest paid people reach three times that person's base amount, their average annual pay over the prior five years, the amount above one times the base amount is an excess parachute payment. The recipient owes a 20% excise tax on it under Section 4999, and the company loses its deduction for it under Section 280G. See How Do I Read an Acquisition LOI?. A private company can exempt the payments with approval by more than 75% of the voting power of the stock entitled to vote, after adequate disclosure of all material facts to every stockholder entitled to vote. Stock held by, or attributed to, the people receiving the payments doesn't count, option holders don't vote, and the vote has to decide whether the payments are made at all, so each affected person first gives up the right to them unless stockholders approve. The vote must be separate from the vote on the deal, and the deal itself can't be conditioned on it.
Example. A company has 12,000,000 voting shares outstanding, counting the preferred as converted. Two founders who hold 5,000,000 of those shares would receive payments above the threshold. Their shares are excluded, leaving 7,000,000, so the payments are approved only if holders of more than 5,250,000 of those shares vote yes. The merger itself needs more than 6,000,000 of all 12,000,000 shares, and the founders' shares count for that. Whether anyone crosses the threshold is a calculation for a tax advisor, so have it run before you sign.
A reverse triangular merger keeps your contracts in your company, but many still require consent on a change of control. Review customer and vendor agreements, your lease, in-licensed software and IP, and loan documents. Venture debt is usually paid off at closing under a payoff letter that releases the lender's liens. Push to keep the list of consents that are closing conditions short, and agree with the buyer when to approach each customer. Your investor rights, voting and right of first refusal agreements usually end on a sale under their own terms. Confirm it, and get written terminations for anything that doesn't.
The funds flow memo lists every wire the buyer sends at closing. Stockholders are paid through a paying agent once each returns a letter of transmittal with tax forms and wire instructions, and cashed-out option holders are usually paid through payroll. The amounts come from the company's allocation spreadsheet, which buyers usually make binding, so its errors tend to come out of the sellers' money. Confirm every wire instruction by phone with someone you already know, because closing wires attract email fraud.
Example. A buyer pays a $30,000,000 headline price, cash-free and debt-free. The company has $1,200,000 of venture debt, $800,000 of unpaid transaction expenses and $500,000 of cash, and its estimated working capital is $150,000 below the agreed target. The agreement sets a $3,000,000 indemnity escrow, a $300,000 working capital escrow and a $150,000 expense fund for the stockholder representative. Assume the preferred converts and every holder shares on the same terms.
| Wire | Amount |
|---|---|
| Lender, under the payoff letter | $1,200,000 |
| Lawyers, accountants and the insurance tail | $800,000 |
| Escrow agent (indemnity $3,000,000, working capital $300,000) | $3,300,000 |
| Stockholder representative expense fund | $150,000 |
| Paying agent and payroll, for stockholders and option holders | $24,900,000 |
| Total wired by the buyer ($30,000,000 plus $500,000 of cash, less $150,000) | $30,350,000 |
The equity value is $28,350,000, of which $3,450,000 is held back. A founder entitled to 30% of the proceeds receives $7,470,000 at closing, and $1,035,000 of the founder's $8,505,000 share waits on the true-up, the escrow and the expense fund.
The buyer prepares a final closing statement, usually within 60 to 120 days, which the stockholder representative checks. In the example, if final working capital is $250,000 below the target, $100,000 worse than the estimate, the buyer takes $100,000 from the working capital escrow and the other $200,000 is released. The founder receives $60,000.
The indemnity escrow is released on its schedule, commonly 12 to 18 months after closing, less pending claims, and earnout statements follow the agreement's timetable. Since 2024, Delaware law has expressly allowed a merger agreement to appoint a stockholder representative whose authority binds all the stockholders, and that person handles claims and releases for everyone. Keep your own copy of the closing documents and payout records, because you may lose access to the company's files. See Escrow, Holdbacks and Indemnification and How Does an Earnout Work?.
For more, see What If the Sale Price Is Less Than the Preference Stack?, Getting Paid in Buyer Stock, What Happens to Stock Options When a Startup Is Acquired? and Fiduciary Duties of Startup Founders.
If you've signed an LOI and the first draft of the merger agreement is on its way, contact us.
