Can we negotiate no-shop out of a term sheet entirely?

In hot financings: sometimes. In M&A: essentially never. The buyer's rationale is legitimate — they're spending significant resources on diligence and don't want to lose the deal to a last-minute higher offer.

What if a competitor offers to buy us during exclusivity?

Depends on the fiduciary-out clause. If present, you can engage with unsolicited superior offers if your board's fiduciary duty requires. If absent, you must decline until exclusivity expires or the current deal terminates.

How much does exclusivity cost founders?

Hard to quantify. Typical range: 10-30% reduction in final terms vs. what you could achieve with continued parallel negotiations. Cost is worth it if the deal closes; catastrophic if the buyer walks after diligence.

No-Shop Clauses in LOIs and Term Sheets: What to Negotiate

No-shop clauses lock founders out of parallel conversations. Here's what's standard, what to push back on, and how to preserve optionality.

No-Shop Clauses: What You Give Up When You Sign

A no-shop clause (also called exclusivity provision) prohibits founders from soliciting or engaging with alternative offers during a specified period after signing an LOI or term sheet. It's the single most consequential binding provision — it transfers leverage from you to the buyer/investor for the duration.

Standard structure

Duration: 30-45 days from signing (M&A), 45-60 days (financings with syndicate assembly). Scope: no solicitation of alternative offers, no continuation of prior negotiations, no sharing information with potential alternative parties. Fiduciary out: rare in financings, sometimes present in M&A (allows engaging with unsolicited superior offers if fiduciary duty requires).

What to negotiate

Shorter duration: 30 days is defensible; longer requires justification. Buyer-caused delay carve-outs: extension only if diligence delays are your fault, not theirs. Unsolicited offer carve-out: right to acknowledge (not respond to) unsolicited superior offers. Termination triggers: right to terminate exclusivity if diligence exceeds a specific timeline without close.

What happens if you violate it

Contractual damages: buyer/investor can sue for actual damages plus attorney's fees. Reputational damage: violating no-shops kills future deals — the ecosystem is small and word travels. Injunctive relief: courts can (rarely) force you to stop the parallel conversation. Practical result: don't violate no-shops, ever.

Avoiding the trap

Before signing: warm up all serious candidates so the LOI signer knows you have alternatives. Move fast during exclusivity — the countdown clock helps focus buyer/investor attention. Have your legal counsel confirm all binding provisions before signing. Assume exclusivity means exclusivity and plan accordingly.

Frequently asked questions

Can we negotiate no-shop out of a term sheet entirely?: In hot financings: sometimes. In M&A: essentially never. The buyer's rationale is legitimate — they're spending significant resources on diligence and don't want to lose the deal to a last-minute higher offer.
What if a competitor offers to buy us during exclusivity?: Depends on the fiduciary-out clause. If present, you can engage with unsolicited superior offers if your board's fiduciary duty requires. If absent, you must decline until exclusivity expires or the current deal terminates.
How much does exclusivity cost founders?: Hard to quantify. Typical range: 10-30% reduction in final terms vs. what you could achieve with continued parallel negotiations. Cost is worth it if the deal closes; catastrophic if the buyer walks after diligence.