No-Shop Clause
A binding term sheet provision preventing the company from soliciting or negotiating with other investors for a set period.
A no-shop (or exclusivity) clause is typically the one binding provision in an otherwise non-binding term sheet. It commits the company, for a defined window — commonly 30 to 60 days — not to solicit, encourage, or negotiate competing investment offers while the lead investor completes diligence and finalizes legal documents.
The clause exists because diligence and legal work are expensive and time-consuming for investors, and no lead wants to invest that effort only to be outbid at the last minute. For founders, signing a no-shop means giving up leverage from competing offers for the duration of the exclusivity period, which is why the term sheet itself should already reflect the best terms achievable.
The no-shop is where term sheet negotiation shifts from price to process risk. Once signed, a founder can't take a better offer that arrives mid-diligence or run a parallel process, which makes the exclusivity window the deal's real deadline.
That's the risk: if the lead slow-walks diligence or tries to retrade terms late in the window, the company sits frozen and off the market. Founders who treat the no-shop as boilerplate hand the lead investor a free option on the company.
Three things are worth negotiating: the length of the window, the scope (for example, carving out co-investors the lead has already approved), and an early termination trigger if the lead misses agreed diligence milestones or withdraws.
Hypothetically, a founder signs a term sheet at a $20M valuation with a 45-day no-shop. Three weeks in, another fund offers $26M; the founder can't engage. A week before the window ends, the lead tries to cut the valuation to $15M citing diligence. With a 30-day window tied to diligence milestones, exclusivity would have expired before the retrade, restoring the founder's leverage.
Negotiate the no-shop window as short as reasonably possible (30 days, not 90) and make sure diligence and legal timelines are realistic within it — a long exclusivity period with a slow-moving investor can strand a company if the deal ultimately falls apart.
Can a founder keep talking to other investors after signing a no-shop?
No — a no-shop clause is legally binding and typically covers even passive discussions about a competing round; violating it can expose the company to legal claims from the lead investor.
Is a no-shop clause binding if the rest of the term sheet isn't?
Usually yes, even when everything else in the term sheet is non-binding; confidentiality and governing law are typically carved out the same way.
What should founders negotiate in a no-shop clause?
A short window, a clear scope with carve-outs for approved co-investors, and an early end if the lead misses diligence milestones or walks away.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.