haircut

Haircut

A reduction in a valuation, price, or estimate. In finance: the discount applied to collateral value, or the reduction a seller accepts from their asking price. 'Taking a haircut' means accepting less than expected.

When you'd see it: M&A and investment contexts: 'The investor gave us a 25% haircut on our valuation' means the investor priced the round 25% below what the founders asked. Also in banking: the 'haircut' on a bond used as collateral is the discount to face value the lender applies. Broadly used for any reduction: 'the timeline got a haircut in the budget review.'

Why it matters: Haircuts are a common feature of negotiated transactions. Understanding why a haircut is being applied (risk discount, cash timing, leverage) helps evaluate whether it's reasonable. In M&A, a large haircut on expected synergies during due diligence is a red flag for deal viability.

Common mistakes: Accepting a haircut framing without questioning the basis. If a buyer applies a 30% haircut to your valuation, the right response is to understand their model — not just negotiate the percentage down. Also: applying haircuts to already-conservative estimates, creating double-counted conservatism.

Related synergies, runway, burn rate, LTV