What should the terms of the no shop be?
Takeaway: The "no-shop" clause is a standard, binding provision that grants an investor a 30- to 45-day period of exclusivity; while the provision itself is not negotiable, the length of the period can sometimes be adjusted.
When a venture capital fund gives you a term sheet, they are about to invest a significant amount of their time, resources, and legal budget into conducting due diligence on your company. The last thing they want is for you to use their term sheet as leverage to solicit a better offer from a competing firm.
To protect themselves from this, every term sheet will contain a "no-shop" or exclusivity provision. As we've discussed, this is one of the few clauses in a term sheet that is legally binding from the moment you sign it.
The Core Provision
The no-shop clause is a contractual promise from the company that, for a specified period of time, it will cease all discussions with other potential investors and will negotiate exclusively and in good faith with the investor who has provided the term sheet.
The Key Negotiable Term: The Exclusivity Period
While the existence of a no-shop clause is not negotiable—it is a fair and standard requirement—the length of the exclusivity period can be a point of negotiation.
The Market Standard: The typical no-shop period for a Series A financing is between 30 and 45 days.
The Founder's Goal (Shorter is Better): As a founder, you want this period to be as short as is reasonably possible, typically 30 days. A shorter period creates a sense of urgency and forces the investor and their counsel to move efficiently to complete their diligence and close the deal. It also minimizes the amount of time that your company is "off the market" and unable to engage with other potential sources of capital.
The Investor's Position: An investor may ask for a longer period, such as 45 or even 60 days, particularly if the company is complex or if they anticipate a difficult due diligence process.
A reasonable compromise is often a 30-day period with a potential for a 15-day extension if both parties are still working in good faith towards a closing.
The Consequences of a Breach
The no-shop is a binding contract. If you were to sign a term sheet with one firm and then "shop" that deal to another firm and accept their offer during the exclusivity period, the original firm could sue you for breach of contract. The damages could include all of the legal and due diligence costs they incurred in reliance on your promise of exclusivity.
Agreeing to a standard 30-45 day no-shop period is a professional and good-faith signal to your chosen investment partner, allowing both sides to focus their full attention on the shared goal of closing the financing quickly and efficiently.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.