Break-up fee and expense reimbursement
Last updated
Quick Answer
A break-up fee or expense reimbursement is a payment owed when a deal fails for a defined reason, most often to compensate a buyer for sunk diligence cost.1
What it is
Expense reimbursement covers actual documented costs; a break-up fee is a fixed sum and does not require proving spend. In a middle-market private deal these usually appear as binding provisions in the letter of intent rather than in the purchase agreement, which is why the LOI's expense clause is worth reading as carefully as its price.1
Operational context
What good looks like
Why It Matters
It is the price of the option each side is buying. A buyer paying for exclusivity in diligence spend and a seller taking its company off the market are both exposed, and this is the clause that says who absorbs it.1
Frequently Asked Questions
What is Break-up fee and expense reimbursement in venture capital?
Expense reimbursement covers actual documented costs; a break-up fee is a fixed sum and does not require proving spend. In a middle-market private deal these usually appear as binding provisions in the letter of intent rather than in the purchase agreement, which is why the LOI's expense clause is...
Why is Break-up fee and expense reimbursement important for startups?
Understanding Break-up fee and expense reimbursement is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.T3-29 — Goodwin ProcterCrafting a Competitive LOI (May 2025)Goodwin Procter(A break-up fee or expense reimbursement is a payment owed when a deal fails for a defined reason, most often to compensate a buyer for sunk diligence cost.)secondary · T3 · sell-side-process · concept
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