Deal Terms
Last updated
Quick Answer
A contractual right giving a party the first opportunity to match any offer before shares can be sold to a third party.
Right of First Refusal (ROFR) gives existing shareholders or the company the right to match any offer that a selling shareholder receives from a third party. In venture, ROFRs are standard in investor rights agreements and company bylaws. When an employee or investor wants to sell shares, they must first offer them to ROFR holders at the same price and terms before completing a third-party sale.
In Practice
An employee wants to sell $200K of vested shares to a secondary buyer at $10/share. The company's ROFR gives it 30 days to purchase the shares at $10/share. If the company declines, existing investors get 15 days to exercise their ROFR.
What good looks like
Why It Matters
ROFRs help companies and investors control who enters the cap table. They can complicate secondary sales but protect against unwanted shareholders gaining positions.
VC Beast Take
ROFR seems founder-friendly on paper but often becomes a liquidity trap in practice. We've seen talented employees unable to exercise options because the company won't waive ROFR and they can't afford to hold illiquid shares. Progressive companies are moving toward more flexible structures that balance control with real liquidity opportunities for stakeholders.
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Right of First Refusal (ROFR) gives existing shareholders or the company the right to match any offer that a selling shareholder receives from a third party. In venture, ROFRs are standard in investor rights agreements and company bylaws.
Understanding Right of First Refusal is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Right of First Refusal falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
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