What is a no-shop clause and how long is it typical?

Full Explanation

A no-shop clause prevents the company from actively seeking alternative buyers or investors for a defined period (typically 30-60 days), giving the lead investor time to conduct due diligence.

During a fundraising round, the lead investor requires exclusivity: the company cannot simultaneously negotiate with multiple investors or shop the round to higher-valuation offers. A no-shop clause is binding only on the company (founders), not on investors. A typical no-shop lasts 30-45 days from term sheet signature. If the company violates the no-shop (e.g., tells competitor investors about the round), the investor can walk, and the company forfeits its option to close at the agreed terms. For founders, no-shop is a hard constraint: you cannot run a parallel process during this period. The benefit is certainty: once you have a term sheet, you can operationalise the deal and plan confidently. For investors, no-shop prevents auction dynamics where the company pits investors against each other and walks away mid-process. Post-no-shop expiry (if the investor doesn't close), the company is free to approach other investors. Some founder-friendly terms limit no-shop to 30 days maximum; others allow a 45-day initial period with a 15-day extension if the investor is in active diligence. Hard closings happen after no-shop expires and legal documentation is complete.

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