Right of First Offer (ROFO)

Explaination: The Right of First Offer refers to the right of investors to have the opportunity to purchase the shares of the selling Founders or other investors at the first place, but in ROFO purchasing investors needs to first state the price they are willing to pay unlike ROFR wherein the price comes from the third-party and it is upon investor’s whether they want to match that price and buy the shares or not. If the selling founders or other investors are not happy with the price then can sell the shares to the third-party at a higher price.

How it applies to Startup/Investor and its impact: Founders generally negotiate for ROFO on their shares as they would want to ascertain the price at which the Investors would want to purchase their shares. If the price offered by Investors is not to their satisfaction and they are getting better value from the third-party they can sell their shares to that third-party.

Such a right however is time bound and therefore after expiry of the period the seller is free to pursue other buyers.

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