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.

In 2020, I hosted a fire side chat with Mukesh Bansal, Co-Founder, Myntra and CureFit about brief history of Myntra, CureFit and his insights from building an iconic indian startup as part of The Red Bricks Summit by IIM Ahmedabad. 

You can check out the live recording of our conversation below.

At Ahmedabad University's eChai meetup, hosted by the university's incubation center, I had the privilege of engaging with a panel of entrepreneurs who had appeared on Shark Tank India.

They candidly shared insights into their experiences on the show, revealing the realities behind the scenes, the impact of the exposure, and the invaluable feedback they received from the sharks. Additionally, they delved into their ongoing challenges and future plans for their ventures.

Their narratives of resilience and determination in overcoming obstacles were truly captivating.

The distinguished panelists included Raj Shah Co-Founder of WeHear; Payal Pathak and Soham Payal Pathak Co-Founders of The Simply Salad; Nayan Shah Co-Founder of Maisha Lifestyle; and @illesh sharma Founder of Same Notification.

Here are few notable takeaways from the discussion:

I extend my gratitude for the opportunity to participate in these enriching events and to connect with these inspiring entrepreneurs.

Special acknowledgment goes to Jatin Chaudhary from eChai Ventures for orchestrating such impactful conferences that unite our startup community.

The debut of Lightcone Podcast, a podcast series by Y Combinator. 

Kicking off with "The Truth About Building AI Startups Today," this series brings you up close with the thoughts and insights of YC's own Gary, Jared Harge, and Diana. 

Whether you're just curious about AI or deep into planning your next big venture, this is something you won't want to miss.

 

Yesterday, I had the privilege of attending an exhilarating session at the eChai's Startup Growth Networking Meetup, hosted by the dynamic Jatin Chaudhary at the prestigious IIMA Ventures, Ahmedabad.

Our panelists, each a trailblazer in their domain, shared their unique journeys and invaluable insights:

Zaiba Sarang from iThink Logistics is revolutionizing the logistics sector by significantly reducing product return ratios - a game-changer for brands.

Aditya Shah from Because demonstrated how they're helping brands carve their unique voice in a crowded market.

Vishakha Shah from Venus Logistics shared her experiences in the distinct US logistics market, creating substantial waves in the industry.

Sushil Agrawal's initiative, Saarthi Pedagogy, is impacting over 10 lakh students across India, revolutionizing the educational landscape.

The energy was palpable as young entrepreneurs eagerly engaged with the panelists, seeking wisdom on multitasking and effective management as founders.

Ziaba's anecdotes about customer feedback enhancing their product, Sushil's insights on fundraising, Aditya's take on cultivating a growth-oriented work culture, and Vishakha's candid sharing of the challenges faced by female entrepreneurs, added layers of depth to the discussion.

Kudos to Jatin Chaudhary for his relentless efforts and consistency in creating this one-of-a-kind platform that not only connects but inspires and empowers the startup community.

Had an amazing time at eChai yesterday and came back with some gems that I just have to share. This place really shows that the more you share, the more you get back.

Here's what stuck with me:

1. *Go with Your Gut Feeling*:

   

Bhavesh Patel

from Brands.Live dropped this truth bomb - if you feel something's not gonna work, trust that feeling. Trying to push it when your gut says no? That's a no-go. It's all about trusting that inner voice.

2. *Asking Questions the Right Way*:

   

Sushil Agrawal

, the brain behind Saarthi Pedagogy, shared a killer approach:

   - Are you even asking the right question?
   - Are you asking the right question to the right person?
   - And are you asking the right question to the right person at the right time?

Getting this right can really change the game.

These bits of advice are gold, making you rethink how you tackle things in your own journey. 

eChai isn't just about giving; it's a place where you gain loads, especially in ways you didn't expect.

At IIMA Ventures, we're optimistic about the future of the sustainability sector in India. Harnessing the vibrancy of India's tech ecosystem, startups are poised not just for local impact but to build solutions with a global perspective. Excited to introduce Accenture Sustainability Value Accelerator 2.0's outstanding startups:

sentra.world building an AI platform for calculating, reporting, certifying, and reducing greenhouse gas emissions.

EcoRatings building an AI & ML powered platform for numeric ESG ratings based on the 17 SDGs framework.

TraceX Technologies building solutions focused on transparency, traceability, and sustainability in the food and agriculture supply chain.

CarbonMinus building a SaaS platform ensuring efficiency, compliance, and the realization of net-zero visions.

CarbonTrail building an AI-powered sustainability platform for fashion and retail, measuring environmental impact through automated LCAs and primary supply chain data.

Discover more about our impactful cohort: https://lnkd.in/gsjTnYeU 🚀 

So aaj baat karte hai Sales ki , Sales kya hai and jo bhi hai that is according to me. We can agree to disagree. (This is not AI generated :D )

So I was fired from my job in 2007 for being the worst salesman, as my sales for 6 months was ZERO. That was my first sales job as well.

Fir koi job nahi de raha tha to I started on my own, apporached 200+ customers for my services and finally I got it. It's not the subject of classroom learning but the subject of Action. Do 100 cold calls and you will know and you can see the difference between your first cold and call and 100th.

Then to sharpen my skills, I started learning Sales Techniques and Psychological techniques but at the end Click wahi hua jo hona chahiye tha, today I consider myself a good salesman. My learnings in this journey are

- You don't need techniques but you need authenticity

- Sales is not about processes, openings and closures but It's about People , Understanding people is the key.

- Instead of selling, focus on value creation (waise ye sab pahele bhi 100 baar sun ya padh chuke honge )

- If you have empathy , connection , authenticity, Integrity then you understand your customer , team members , partners far better way and that's the key to sales.

- Last is face your fear. Cold calls are most difficult for many people but once you pick up the call and talk like a human , you will realize that person on other side is same and you can have a good talk at least.

Photo story : I am doing what I love doing most, Sales.

Notes for founders raising funds for the first time

BabyOrgano has raised the funds from DevX Ventures.

During our pitches to various investors, we've recognized that the transparency of our business model and the founder's honesty have been pivotal in garnering positive responses.

Key pointers:

Notes from Startup Exits and M&A Forum

It’s important for both the companies - the company being acquired and the acquirer - to evaluate not just products, services and financials but also whether there is culture fit between the leadership and the team at large.

⁠Due Diligence can bring to light compliance issues as well some times and it is ok. As long as it does not show gross negligence or mis-representation in data, Due Diligence typically goes through.

Diligence at the time of acquisition and diligence at the time of fund-raising are quite different. At the time of acquisition, it is much more focused on team, technology, GTM channels and financials while diligence at the time of fund raising is mostly legal and financial with some attention to other aspects.

It’s difficult for startups to plan for an exit. The plan should be created to become valuable for customers - everything else typically follows.

Things to keep in mind during fundraising for early stage founders.

1. It is crucial to meticulously select a list of venture capitalists whose interests align with those of your company. This strategic alignment ensures that both parties are working towards common goals, thereby fostering a more fruitful and synergistic partnership.

2. View funding primarily as a catalyst for growth. Often, funds raised merely for the purpose of survival can lead a company into a detrimental cycle. Instead, focus on utilizing capital to accelerate development and expansion, thereby enhancing the company's long-term viability and success.

3. Be aware that certain aspects of your business may raise concerns or 'red flags' from an investor's perspective. It is imperative to continuously strengthen the 'green flags' or positive aspects of your venture. By reinforcing these strengths, you can effectively mitigate the impact of any potential red flags and present your business in a more favourable light to potential investors.

Things to keep in mind during fundraising for early stage founders.

There are no permanent ‘No’s. When an investor passed on your deal, ask for permission to keep them updated every quarter and then enrol them into a list to which you send out a quarterly update across your product, team and growth. You never know when interest in your startup might peak.

Fundraising is a full-time activity for 1 founder. Pitch to as many people as you can. Pitch, Ask for feedback, improve, repeat.

At early stages, valuation is more of an art than a science. Ultimately, when you are at the negotiating table - everything falls back to how desperate you are to raise and how convinced they are to invest in you.

Things to keep in mind during fundraising for early stage founders.

1) It is very important to know/understand when is the right time to raise funds. Don’t raise at the last minute else you won’t have any leverage.  Also consider there may be multiple ways to increase your company’s cash including debt options 

2) In the struggle between balancing funds and growing customers,  try to focus on growing customers using any means necessary.  Remember if there is growth, funds will follow. 

3) During the process of raising funds, anything could go wrong. Don’t rest just because you have a signed term sheet. It’s never over until the funds are in your bank account. 

4) Having some kind of leverage is the most important thing while raising funds.  

You can have leverage if,

a) your growth is strong 
b) multiple VCs are interested in putting money creating competitive situations 
c) founders have a history of building successful companies before

Do's and Don'ts of Fundraising for early stage founders.

Do's

- You should have a clear plan for atleast next 12 months that can be seen on excel sheet, which clearly shows, what this fund raise is going to achieve for you.

- Start the process 4-6 months before you actually need the funds

- Get an understanding of funds portfolio/thesis/decision making process by reaching their portfolio companies prior to pitching.

Don'ts

- Try not to mention about valuations untill explicitly asked. Do not become rigid on a number, try to negotiate and substantiate your number.

- Don't keep high hopes from 1 single investor, keep talking to multiple people at the time. But at same time be transparent about the options to them, whenever you start doing serious conversations on terms and stuff

- Do not mess your cap table with number of people, keep it as clean as possible, it makes your life much much more easy when raising next rounds!

Yesterday, I had the privilege of participating in an insightful meetup organized by eChai and Venture Studio at Ahmedabad University, focused on Startup exits and M&A. The panel featured

Gaurav Barot

  from Tridhya Tech and

Yash Shah

  from Clientjoy, skillfully moderated by

Jatin Chaudhary

from eChai and myself as a representative from IndiaBizForSale.

The audience comprised a diverse mix of management students, early-stage startup founders, professionals, and seasoned business owners. We delved into valuable discussions on the nuances of M&A experiences, sharing insights from various perspectives.

Clientjoy's recent acquisition by a strategic player and Tridhya Group's strategic acquisitions of nine companies provided rich learning opportunities. As a representative of Indiabizforsale, I had the chance to contribute our experiences, shedding light on exit plans, the pivotal role of investment bankers and outside counsels, dynamics of deal progress, and the strategic timing of exits.

Discussions also touched upon when not to consider an exit, the standard fee structure associated with such activities by investment bankers, and more.

Takeaways from the evening:

1. Team: If you lack previous M&A experience, seek outside counsel to avoid costly mistakes and stay on course during this potential roller coaster event.

2. Unlocking Value: M&A brings definite value unlocking for entrepreneurs, providing a sense of relief as they embark on new beginnings.

3. Role of Clean Bookkeeping and Clear Communication:Transparent communication is vital for sell-sides. Share an accurate company picture to preemptively address any discrepancies that may arise.

4. Reputation Risk: Acquirers, building a fair and forward-looking reputation, attract better deal flow. Unethical tactics may yield short-term wins but jeopardize future opportunities.

5. Due Diligence: The multifaceted Due Diligence (DD) process covers business, HR, financial, legal, tech, IP diligence, and industry-specific areas.

It was truly gratifying to engage with a diverse audience in the thriving Ahmedabad ecosystem, and I'm delighted to be part of the eChai Ventures community. Looking forward to more enriching interactions!