Key Terms Of A Priced Round - No Shop Clause
- 01:37
Introduing various terms which are used in the priced rounds of funding.
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A no shop clause can be requested by a VC fund when it needs some time to complete its due diligence before agreeing to invest in a company. A no shop clause prevents the startup from seeking investments from other VC funds for a period of time while the VC fund completes this process. A 30 day no shop clause is common. Another key term to be aware of is preemption rights. It grants the VC fund the right, but not the obligation to participate in the next round of financing as well as the current round. So if a new funding round leads to a new offering of shares in the startup, the VC fund aren't excluded from it. It protects their investments. Also, a right of first refusal protects the VC fund from a secondary sale or the sale by one of the existing investors to other investors. In this case, the VC fund has the right to purchase the shares from the existing investor that's looking to exit before those shares are offered to third parties.
These are useful clauses to agree prior to investment so that a VC fund can invest its targeted amounts and also maintain its stake for the duration without being impacted by the activity of other shareholders or potential new investors.