Deal Terms
Last updated
Quick Answer
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.
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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.
Understanding Rights of First Offer is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Rights of First Offer 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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