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
"From late-night brainstorming over chai to early morning founder calls, eChai has been more than just a network for me; it’s been home base for ideas, impact, and inspiration. What started as a simple meetup years ago turned into a powerful movement, connecting founders, creators, and dreamers. I’ve had the privilege of seeing startups find product-market fit, marketers (like me) find unexpected collaborations, and most importantly, people finding their tribe. संगच्छध्वं संवदध्वं – Let us move together, speak together. It’s not just a verse from the Rigveda — it’s how Jatin and the entire eChai community truly operate. We don’t just network, we grow together. Forever grateful to be a part of the eChai Effect.
Jaydip Parikh
Chief Everything Officer at Tej SolPro
"I attended my first eChai event 3 yrs back, and no one knew me in the market. Over the next three years, eChai didn’t only help me with knowledge or networking, but it gave me an identity from being unknown to now being recognized by a group of inspirational entrepreneurs connected with eChai, who have been gracious enough to acknowledge me and Digipple."
Viraj Rajani
Co-Founder, Digipple
"eChai has been a game changer in my journey. It connected me with real people, real support and real opportunities. From building HMMBiz to launching Mindalcove, eChai has played a key role at every step. Grateful to be part of a community that truly believes in growing together."
Hardik Manwani
CTO, Mind Alcove
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.
