Right of First Refusal (ROFR)

TL;DR

The right of the company or existing investors to match any third-party offer to buy shares before the seller can transfer them externally.

ROFR gives the company or existing investors the option to buy shares being offered to a third party on the same terms. It restricts founder secondary transactions, deters competitive investors from buying into the cap table indirectly, and gives the company control over who joins the cap table.

ROFR is sometimes paired with co-sale (tag-along) rights and right-of-first-offer provisions to create a coherent transfer-restriction regime.

Worked example

A former employee wants to sell 10,000 vested shares to an outside buyer at $8/share. ROFR gives the company (and then existing investors) 30 days to match the offer at $8. The company exercises ROFR, repurchases at $8, retires the shares.

Common pitfalls

• Triggering ROFR on every small transfer, slowing down employee secondaries.
• Failing to coordinate ROFR with the company's own buyback plans.
• Letting ROFR conflict with later round transfer-restriction terms.

When this shows up in a pitch deck

Diligence content; not on the deck.

Related terms

• Tag-Along Rights — The right of minority shareholders to join a sale by majority shareholders on the same terms, preventing 'cherry-picking' liquidity.
• Drag-Along Rights — A provision allowing majority shareholders to force minority shareholders to participate in an approved sale of the company on the same terms.
• Secondary Sale — A sale of existing shareholder stock (founders, employees, or early investors) to a new investor, providing partial liquidity before an IPO or acquisition.
• Tender Offer — A company-organized program letting employees and early investors sell a portion of their shares back to the company or to outside investors at a set price.
• Term Sheet — A non-binding document outlining the principal terms of a proposed financing, used to align investor and founder before legal documents are drafted.

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