Deal Terms
Rights of First Offer
A contractual right requiring a shareholder to offer their shares to existing investors before selling to third parties.
A right of first offer (ROFO) requires a shareholder who wishes to sell their shares to first offer them to the company or existing investors before offering them to outside parties. The ROFO holder has a specified period to match or decline the offer. If declined, the selling shareholder can then sell to third parties — but typically only at a price and on terms no more favorable than those offered to the ROFO holder.
In Practice
When the departing co-founder wanted to sell her 500K shares, the ROFO provision required her to offer them to existing investors first at $10/share. The Series B lead exercised the ROFO, purchasing all 500K shares and keeping them off the secondary market.
Why It Matters
ROFOs help existing investors maintain their ownership positions and control who joins the cap table. They prevent unwanted third parties from acquiring shares and provide a mechanism for orderly secondary transactions.
VC Beast Take
The difference between ROFO and ROFR (right of first refusal) matters: ROFO requires the seller to make the first offer to existing holders, while ROFR only triggers after the seller has already received a third-party offer. ROFO is generally more protective for existing investors.
Related Concepts
Further Reading
Understanding Your Startup's Fundraising: What It Means for Employees
When your startup raises a new round, your equity changes in ways that aren't always obvious. Here's what dilution actually means, why higher valuations can be misleading, and what new investor rights mean for you.
How to Read Your Startup's Cap Table as an Employee
Your startup's cap table holds the answers to what your equity is really worth. Here's how to read it, understand your ownership percentage, and see where you stand in the stack.
Angel Investing 101: How to Start Investing in Startups
A practical guide to entering the world of startup investing — from accredited investor requirements and minimum check sizes to finding deal flow and understanding the legal basics.
How to Negotiate a Term Sheet as a First-Time Founder
Your first term sheet is exciting and terrifying. Know what's negotiable, what's standard, and the practical tactics for pushing back on liquidation preferences, board seats, and protective provisions.
How to Evaluate a VC Firm Before Taking Their Money
Not all VC money is equal. The wrong investor can slow you down, block future rounds, or make your life miserable for a decade. Here's how to do due diligence on your investors.
Lead Investor vs Follow-On Investor: What Founders Need to Know
Your lead investor sets the terms, anchors the round, and signals to the market. Getting this wrong can stall your fundraise for months. Here's how lead and follow-on dynamics actually work.
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