No-Shop / Exclusivity

## What it is When a startup signs a term sheet with a venture investor, the document usually includes a no-shop (exclusivity) clause. It prevents the founders from shopping the deal around — soliciting, courting or negotiating with other potential investors or acquirers — for a defined window, typically 30 to 60 days, while the lead investor completes due diligence and finalises the binding agreements.

## Why investors want it Due diligence is expensive and time-consuming. A VC about to spend lakhs on legal, financial and technical diligence wants assurance the founders won't simultaneously run an auction and use the VC's offer merely to extract a higher bid elsewhere. The no-shop gives the investor a protected period of good-faith exclusivity to close the deal it has committed resources to evaluate.

## How it plays out in Indian deals In India's active startup funding market, no-shop clauses are standard in term sheets from domestic and global VCs. They are usually one of the few legally binding parts of an otherwise non-binding term sheet (alongside confidentiality and governing-law clauses). Key negotiation points for founders:

- Duration: keep it as short as reasonable (30–45 days); a long exclusivity with no deal-completion commitment can leave a cash-strapped startup stranded. - Carve-outs: founders may negotiate exceptions, e.g. continuing existing financing discussions or responding to unsolicited strategic interest. - Reciprocity: some founders push for milestones or a break clause so the investor can't sit indefinitely.

## The risks for founders The danger is signing a long no-shop with a non-committed investor. If the VC drags diligence, then walks away, the startup has burned exclusivity time and may have to restart fundraising with depleted runway — a real hazard in tight funding environments. Founders should sign a no-shop only with investors they genuinely expect to close with, and keep the clock short.

Bottom line: the no-shop is a fair, reciprocal-spirited protection for an investor spending money on diligence — but for the founder it is a commitment to pause all alternatives, so the period and carve-outs deserve careful negotiation before signing.