What is No-Shop Clause?
Nexa Consultancy | Startup & Finance Glossary
A No-Shop Clause is a provision in a term sheet or letter of intent that prohibits a startup from soliciting or negotiating with other potential investors for a specified period after signing the term sheet with a lead investor.
Base Term for Startups: This clause gives the lead investor exclusivity while they conduct their due diligence. It's a standard term, but founders should negotiate for the exclusivity period to be as short as possible (e.g., 30-45 days) to avoid being locked into a slow process if the lead investor decides to back out.
For Investors: The no-shop clause is essential for investors. It ensures that they can commit the time and resources to due diligence without the risk of the startup using their term sheet to get a better offer from another firm.
Base Term Example: A startup signs a term sheet with a VC that includes a 45-day no-shop clause. For the next 45 days, the startup is legally obligated to cease all fundraising conversations with other investors.