Right of First Refusal (ROFR)
Definition
A ROFR gives the company or investors the right to buy shares a holder wants to sell, on the same terms as the outside offer, before the sale can proceed.
How it comes up in fundraising
ROFRs control who enters the cap table via secondary sales; strategic investors sometimes seek ROFRs on the whole company, which founders should resist.
Frequently asked questions
Why do companies want ROFRs on employee shares?
To keep equity from landing with random or hostile buyers and to manage information access.
Why is a company-level ROFR dangerous?
A ROFR over an acquisition chills other bidders, since no one wants to negotiate a deal a strategic can simply match.
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