Points typically traded in the ROFR/co-sale include: The ROFR/co-sale contract rarely receives more than superficial feedback in typical risk financing. If a shareholder wishes to dispose of shares that can be co-owned or taken, other shareholders who benefit from the right may insist that the potential buyer agree to acquire an equivalent percentage of his shares at the same price and on the same terms. This can make it more difficult to sell the shares. A venture capitalist`s decision to invest in a company often rests largely on the strength of the technical and managerial experience of the founders and management. He does not want these people to sell their shares in the company as long as it remains an investor. Therefore, investors often demand a ROFR as well as co-sale/tag-along rights on any sale of shares by a key founder or manager. In fact, they can sometimes demand a ban on founders and key managers selling shares for a certain period of time. It`s not uncommon for preferred investors to require startup founders to sign a co-sale agreement. Co-ed rights give investors the right to participate in a transaction if the founders sell their shares to third parties. Covente rights, also known as label rights, allow investors to sell their shares on the same terms as founders. To protect investors, these rights are often associated with the right of first refusal, a separate right that gives the investor the opportunity to buy the founder`s shares if he decides to sell to a third party.
The right of first refusal and the right of co-sale (“ROFR/Co-Sale”) work together to prevent a founder or common shareholder from selling shares without the Company and investors being allowed to buy the shares or participate in the sale of the shares. Below is a typical term sheet determination. Definition A provision of the right of first refusal (ROFR) in a term sheet gives the company and/or investor the opportunity to acquire shares of founders or other large ordinary shareholders before they are sold to third parties. If the company or investor exercises this right, the sale must be made under the same conditions as the third party`s offers. Some term sheets give the option first to the company and then to the investor*, while others simply give the option to the investor.* If there are multiple venture capitalists, the ROFR provision generally states that everyone has the option to buy a proportionate portion of the shares sold.* These are contractual terms between shareholders that are usually included in the articles of association….