ROFR and Co-Sale Agreements Now More Frequent in Seed Transactions
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The inclusion of Right of First Refusal (ROFR) and Co-Sale agreements in tandem have been standard in Series A and later-stage equity financings, appearing in over 90% of deals. However, when it comes to Series Seed financings these provisions have historically been less common – a trend that has reversed in recent years.
According to Aumni data, the prevalence of ROFR and Co-Sale agreements in tandem in seed-stage financings has grown from 75% in 2018 to 93% in 2024, more in-line with later stage rounds.
Right of First Refusal (ROFR) is a provision that gives shareholders the right to purchase shares from a selling shareholder before they are offered to external investors. This gives shareholders the opportunity to protect their investment by increasing their ownership and control.
Co-Sale Agreements give shareholders the right to sell a proportionate number shares alongside a majority shareholder under the same terms. This gives existing shareholders access to liquidity in the event of sale.
While ROFR and Co-Sale agreements can introduce complexity in secondary sale negotiations, they can also lead to a more stable cap table. Additionally, the scope and terms of a ROFR are points of negotiation. The types of shares and sales to which the ROFR applies and the time that existing shareholders have to exercise their options are just a few of the considerations that go into a ROFR provision.
As the prevalence of these provisions in seed-stage financings settles over 90%, their impact on external investors entering the early-stage cap tables through the secondary market will be worth watching.
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