Meaning
Alternative dispute resolution methods offer a way to resolve complex financial or technical disagreements without going to court. When parties agree to use expert determination, they appoint an independent specialist to resolve a specific issue like a valuation or an earnout calculation. This process is faster than traditional arbitration and does not require a formal legal hearing.
Technical Resolution
Disputes over software metrics or balance sheet adjustments require specialized industry knowledge rather than legal expertise. In the process of expert determination, the appointed specialist uses their own knowledge and investigations to reach a conclusion. They do not merely act as an arbitrator hearing arguments, but actively analyze the data provided by both sides.
Decision Finality
Decisions reached through this method are usually binding on all parties with very limited opportunities for appeal. The use of expert determination prevents ongoing litigation and allows the startup to proceed with its business operations. This finality is established by contract and can only be overturned in rare cases of fraud or obvious bias.
Founder Commitment
Founders must allocate hours to preparing detailed technical submissions to ensure the specialist has accurate context. While expert determination is less expensive than a full trial, it still consumes significant executive attention and financial resources. The outcome can determine whether a founder receives their full acquisition payout or faces a major reduction in their equity value, making the quality of the submission critical to their financial future, especially when the technical boundaries of the original contract are ambiguous.
