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📰 Today's topic: the “no-shop” clause

When you offer a term sheet to a founder, it’s a big deal. It’s not just a check - it’s an invitation to team up, hopefully for many years.

But the deal’s not done until the money is wired.

After you make your offer, there’s a window of time in which you get to do your due diligence.

What if, during that time, you hear through the grapevine that the founder is shopping around for a different lead investor? Or a bigger check? Or better terms?

Ouch.

Enter: the no-shop clause. This is a standard term in a venture financing term sheet that says:

The founder agrees not to seek or negotiate other investment offers (especially from other potential leads) for a limited period of time.

That’s fancy speak saying that you — the investor — gets a short exclusivity window to complete your diligence and legal review without having the founder shop your term sheet around to other firms for better terms or a bigger check.

Why does this even exist?

From an investor perspective, it’s simple:

You’re about to commit time, energy, and resources to evaluating a deal — legal costs, reference calls, partner meetings, and possibly starting the investment docs.

You want some assurance that the founder won’t turn around and accept a competing term sheet mid-process.

It’s not about control — it’s about protecting your process.

The real-world tension

Here’s where things get tricky, especially in pre-seed and seed deals:

• Most early-stage rounds are not fully filled by a single check.

• Founders are often in the middle of active fundraising when your term sheet lands.

• The clause can unintentionally freeze or slow down the rest of the round, depending on how it’s written or enforced.

This is where some no-shop clauses — or overly aggressive enforcement of them — can work against investors.

Founders may feel boxed in or confused about what’s still allowed. Especially if they think there’s a chance that YOU might back out of the deal at the 11th hour.

And in a competitive market, this friction can cause a founder to walk away entirely.

What’s actually restricted

Most no-shop clauses prohibit:

• Soliciting new lead investors

• Negotiating or accepting competing term sheets

• Publicly sharing your term sheet

• Using your term sheet to create a bidding war

What’s still allowed

Founders are typically still allowed to:

• Take meetings with angels or non-lead investors

• Continue filling out the round under your agreed-upon terms

• Respond to inbound investor interest (as long as they don’t negotiate new leads or terms)

Using a no-shop clause effectively

1. Keep it short.
A 7–14 day window is standard. Anything longer may feel excessive unless you're writing a large check or there's complexity on your side.

2. Communicate clearly.
Explain why the clause is there. It’s not about limiting their raise — it’s about protecting your commitment while you finalize your process.

3. Allow carve-outs.
If your check doesn’t fill the round, be explicit: “Feel free to continue conversations with angels or others under our terms.” You can even include that in writing if needed.

4. Be reasonable about enforcement.
This isn’t M&A. If a founder gets an inbound offer during the no-shop window, have a candid conversation rather than lawyering up.

Remember, you’re early-stage — relationships matter more than rigid enforcement.

When you don’t need one

If you’re writing a small check and not leading, or you’re just participating in a SAFE at founder-friendly terms, a no-shop is usually unnecessary.

Save the clause for situations where you’re:

• Setting the terms

• Leading the round

• Writing a significant check relative to the raise

Bottom line

The no-shop clause is a helpful tool to protect investor time and process, but use it thoughtfully.

At the early stage, when founders are often mid-fundraise and juggling multiple conversations, clarity and flexibility go a long way.

Protect your downside, yes — but don’t let a boilerplate clause become a reason to lose a great deal.

Can’t shop, won’t shop –

Kera from Hustle Fund

When Eric’s career was just a wee little thing, he was working for a tech company in product management.

He wanted to become an angel investor, but he didn’t have cash to spare.

One day Eric was browsing Hacker News and he read about a founder that seemed super impressive.

Eric offered the founder a deal. He would swap his product management expertise for advisory shares.

The founder agreed. They signed a FAST agreement (Founder/Advisor Standard Template) and they were off to the races.

And then what happened?? →