Startup Learning Series: Understanding ROFR vs. ROFO

ROFR (Right of First Refusal)

➡️ What is ROFR?
The holder has the privilege to match any offer the seller receives before finalizing a deal with a third party. Essentially, they have the right to refuse an initial offer and step in with the same terms.

➡️ Example:
Startup A grants an investor a ROFR. If the startup receives a funding/ acquisition offer from Company X, the investor has the first shot at matching that offer before the startup can proceed with Company X.


ROFO (Right of First Offer)

➡️ What is ROFO?
Unlike ROFR, this gives the holder the first chance to make an offer before the seller approaches others. The seller is obligated to consider this initial offer before entertaining offers from third parties.

➡️ Example:
Startup B gives an investor a ROFO. If the startup decides to sell a portion of its shares, the investor gets the opportunity to present an offer first before the startup explores other options.


Which is more beneficial for Startups?

➡️ ROFO: This can be advantageous for startups aiming to maintain control and nurture strategic partnerships. It provides a structured process for selling shares and ensures that existing stakeholders are considered first.

➡️ ROFR: Startups looking for flexibility might prefer ROFR. It allows them to explore various offers and potentially secure a better deal.


Which is more beneficial for Investors?

➡️ ROFR: Investors seeking security and the ability to protect their investment may lean towards ROFR.

➡️ ROFO: Investors looking for proactive involvement and a first-mover advantage may find ROFO more appealing. It allows them to set the initial terms and potentially secure a deal before others come into play.


Considerations for both Parties

➡️ Negotiation Power: ROFO gives negotiating power to the holder by allowing them to set the initial terms.

➡️ Flexibility: ROFR provides flexibility for sellers to explore various offers before committing.

➡️ Relationship Dynamics: Both agreements impact the dynamics between startups and investors, requiring a careful understanding of the long-term vision and goals.


Conclusion

➡️ The choice between ROFR and ROFO depends on the specific needs and goals of the startup and the investor involved.

➡️ It's not a one-size-fits-all scenario, and understanding the nuances is crucial for creating mutually beneficial agreements.


Other posts in the Startup Learning Series:

🔗 Pre-emptive Rights: https://lnkd.in/dQKcThft

🔗 Liquidation Preference: https://lnkd.in/dRb2Eetc

🔗 Anti-dilution Clause: https://lnkd.in/dFSWs2xH

🔗 Understanding ROFR: https://lnkd.in/dxuVBxge

At STIR Advisors, we help startups and investors with our expertise to navigate through such intricacies.

Collaborating with

Mihir Joshi

 & GVFL to host eChai Socials at their new Venus Stratum office every week evening starting next week. 

Eashita Maheshwary

, a Business Growth Strategist based out of Bangalore, is in Jaipur today.

We are organizing a small gathering for startup folks in Jaipur this evening at DevX Anand Fort, Malviya Nagar, starting from 6:30 pm onwards.

If you’re in Jaipur and would like to join us, please let me know.

Being a startup entrepreneur is far from easy, as I've realized from my experience at Biziverse.

You must excel at making the product, managing finances, ensuring compliance, motivating your team, what not. One mistake and you face a disproportionately large punishment.

You cannot even expect support from the society. Some may look at you as a fool despite your multi role excellence everyday, or as an entitled "seth" even as you face nightmares of how to manage your next payroll. To them and to others, you must maintain the facade of "sab theek thaak hai" (everything's great).

This is where I realize the value of these three kinds of people: (1) Co-founders, as they share and lighten the challenges; (2) Investors, as they truly wish you well and help solve the critical challenge of finances, and (3) Startup communities like eChai Ventures, as you gain inspiration and wisdom from fellow entrepreneurs and their similar experiences.

We must realize and appreciate the roles of these three support sources, and even give back and give forward as much as we can! 😊

Welcome to “Kal Ke Krorepati” chhote sheher, Bade sapnein - Bharat ka Apna show.

Yesterday, Team Iroller achieved a “milestone” in the startup ecospace by bringing this show to fruition.

Last year we felt the need to explore this space. The show wouldnt have been possible without the unconditional support of GVFL Limited Saswat Sundar Sushil Sharma Sushanto Mitra Pranav Chaturvedi Marmik Shah Gautam Pai Kamal Bansal i-Hub Gujarat Neha Sharma Lead Angels Network Naveena Reddy Favcy Venture Builders Iroller Capital Pvt Ltd Jadeblue Lifestyle India Limited Karnavati University (KU) RITESH HADA Abhinav Kapadia PDEU Innovation and Incubation Centre Viral Shah M Nagarajan DevX Umesh Uttamchandani Jaimin Shah Jignesh Patel

27 startups, 9 funds, 1 show - Kal Ke Krorepati, Chhote sheher, bade sapnein.

This show is focussed on the innovators and entrepreneurs from Tier2 and Tier3 cities. Its not just another funding show. The objective of this show is to create more awareness and strengthen our startup ecosystem and provide the startup founders, not only with investments, but also venture building, scaling, cross border incubation and mentoring support.

As we embark on our journey to showcase this show on the national platform very soon, we sincerely thank Mr Suniel Shetty Sir who blessed us with his gracious presence and gave us immense strength to keep going. This not only validates our efforts but also strengthens our will and intent to mobilise the startup ecosystem.

Presenting our first chapter - Gujarat

Thank you Team iroller Jignesh Vasavada Hemendra Jadeja Shivani Thakkar CA Pratik Shah Prakash Chandwani Shoeb Bhojani Sidharth Doshi Arpita Chalishazar.

News coverage:

 

eChai Startup Demo Days are happening in 7 cities in India this week.

- Ahmedabad at IIMA Ventures
- Bengaluru at Draper Startup House 
- Hyderabad at CoKarma
- Gurugram at Nasscom Gurugram 
- Mumbai at DevX 
- Pune at Ideas to Impacts Hub
- Surat at Provyz 

eChai meetups are also happening this week in Bhopal, Vadodara, and Bhubaneswar.

Free registration at eChai.Ventures 

Presenting Tide 2.0, an initiative in collaboration with the Ministry of Electronics and Information Technology & MeitY Startup Hub, designed to empower early-stage startups on their journey.

Whether you're a budding entrepreneur or a startup embarking on the development of groundbreaking solutions in any of the mentioned focus areas utilizing emerging technologies, this is an opportunity you don't want to miss.

Here's what you can expect:

- Grants of up to INR 7 Lakhs to supercharge your innovation.
- Portfolio support from us throughout your entrepreneurial journey.
- A range of additional offerings designed to fuel your growth and success.

Join over 30 startups that have already benefited and seize the opportunity to elevate your startup to new heights.

Apply now: https://lnkd.in/dZA5B4bP