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.
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.
The eChai Effect - In Their Words
"eChai has played a truly pivotal role in HummingBird’s journey — even before Day Zero. From ideation to establishment and into growth, it’s been a constant source of support. It connected me with incredible people who’ve become more than just friends. One of the biggest reasons I chose to stay in Ahmedabad is because of the eChai community. It has shaped my growth — both personally and professionally — in ways that are hard to articulate. Honestly, words fall short when I try to express what eChai means to me. I’m deeply thankful and forever grateful to eChai for being such an integral part of my journey."
Harsha Bhurani
Founder, HummingBird Consulting Group
"I have evolved from role of Community Builder to Startup Consultant to Startup Ecosystem Enabler to Angel Investor and now launching a Venture Studio and eChai has been a catalyst in my overall journey as Startup Evangelist since 13 years."
Mehul Shah
Co-Founder at Counselvise & Ivy Growth
“I have no hesitation in saying that my association with eChai has been a gateway into the startup ecosystem. Through this platform, I’ve had the opportunity to connect with many young and dynamic entrepreneurs. These interactions have been immensely enriching - I’ve learned a great deal and have always tried to offer guidance whenever approached. It’s a truly symbiotic relationship that I deeply value, and it wouldn’t have been possible without eChai.”
Syed Nadeem Jafri
Founder, Hearty Mart
eChai Partner Brands
eChai Ventures partners with select brands as their growth partner - working together to explore new ideas, open doors, and build momentum across the startup ecosystem.
Gaming
Zatun is an award-winning, innovative indie game developer since 2007. We develop our IP and do work for hire.
