Schmuck insurance

Factual definition

Informal deal slang for negotiated rights that let a seller participate in specified upside after a sale. It is not an insurance policy or a guarantee of payment; the rights depend on the contract.

Schmuck insurance in practice

Hypothetical: a seller negotiates an option to participate in future upside. Its value depends on the security, exercise price, dilution, exercise period, and settlement terms. Exercise may require a payment by the seller and may result in equity ownership or a cash settlement. An ownership percentage alone does not establish a payout or who pays whom.

How Shayne Fitz-Coy uses Schmuck insurance

A seller who sells before a good year will kick themselves forever. I do not want to feel like a nitwit, and neither does the person on the other side of the table.

In one deal it took the form of a 12.5 percent option exercisable only at the end. The buyer avoids putting more equity in, and the seller still reaches the full reward if the business performs.