Term Sheet Exclusivity and No-Shop Clauses
You finally have a term sheet in hand, and near the bottom sits a short paragraph that asks you to stop talking to other investors. That paragraph is the no-shop clause, and it is one of the few parts of a term sheet that binds you before any money arrives. This explainer walks through what exclusivity really means, why investors ask for it, how long it usually lasts and how to negotiate it so a good round does not turn into a long wait.
Key takeaways
- A no-shop (exclusivity) clause stops you from soliciting or negotiating with other investors while the lead investor finishes due diligence and legal documents.
- As a rule of thumb, exclusivity usually runs 30 to 60 days. Shorter is better for you, and you can ask for it to end early if the investor goes quiet.
- The no-shop is usually one of the only binding parts of a term sheet, alongside confidentiality and who pays legal fees.
- Negotiate the scope, the length and the exit conditions before you sign, because once exclusivity starts your leverage drops.
Most of a term sheet is a non-binding summary of the deal to come: valuation, option pool, board seats and the rest. The no-shop is different. It is a promise you keep from the day you sign, and it shapes how the next several weeks feel. Handled well, it is a fair trade for an investor's time and legal spend. Handled badly, it can leave you locked to a slow or wavering investor while your runway shrinks.
A quick note before we dig in: this article is general information about fundraising, not legal or financial advice. Term sheets vary a lot, so have a lawyer who works on startup financings read yours before you sign anything.
What a no-shop clause actually says
A no-shop clause, also called an exclusivity clause, is a short section that asks the company and its founders not to seek, encourage or negotiate investment from anyone else for a defined period. The language usually covers three things:
- Who is bound. Typically the company, its founders and officers, and sometimes its advisers and agents.
- What is restricted. Soliciting new offers, sharing information with other investors, negotiating alternative terms, and sometimes even responding to unsolicited interest.
- How long it lasts. A fixed number of days from signing, or until the deal closes, or until the investor walks away, whichever comes first.
Some versions add a notification duty: if another investor approaches you during the period, you must tell the lead. Others carve out existing investors, so you can still talk to current backers about their pro rata share. Read the exact words, because "no-shop" is a label, not a standard.
Why investors ask for it
Once a lead investor issues a term sheet, they start spending real money and time: lawyers draft documents, partners do reference calls, and analysts dig through your data room. They want to know that you will not take their offer, show it to a rival fund and use it to extract a higher price. Exclusivity protects that investment of effort. From the investor's chair, it is reasonable. From yours, it is a cost, and costs should be priced.
Pro tip
Treat the no-shop as a sign that the investor is serious, not as a done deal. A signed term sheet with exclusivity is still a term sheet. Keep your plan B investors warm with a polite "we are in a process, I will update you in a few weeks" message sent before you sign, so you are not breaching anything later.
How long exclusivity usually runs
As a rule of thumb, no-shop periods usually run 30 to 60 days. Thirty days is enough for a standard seed or Series A if everyone is organized. Sixty days gives room for deeper diligence at later stages or when a deal involves several investors. Anything longer deserves a clear reason.
The length matters because the clock runs on your runway, not the investor's. If you have six months of cash left and sign a 60-day exclusivity with an investor who then takes 90 days, you have spent half your remaining time with no money in the bank and no other conversations in progress. That is why founders push for shorter windows and for clear ways to end exclusivity early.
What happens when the period ends
When the no-shop expires, you are free to talk to anyone again. The term sheet itself may still be alive, and many deals close after a short extension. But the expiry is a natural checkpoint: if the investor has not produced draft documents or finished diligence by then, you can ask why, agree a short extension with new milestones, or re-open other conversations. The important thing is that the end date is written down, not implied.
Scope: what you can and cannot do during exclusivity
A fair no-shop restricts soliciting new offers. An overly broad one restricts almost any investor contact, which can trip you up in ways you did not expect. Here is a practical breakdown of activities and how typical clauses treat them.
| Activity during the no-shop | Usually allowed? | What to check in the wording |
|---|---|---|
| Talking to existing investors about their pro rata | Often yes, if carved out | Ask for an explicit carve-out for current shareholders filling the round |
| Replying to an unsolicited approach | Varies | Clarify whether you may say "we are under exclusivity" or must stay silent and notify the lead |
| Applying for grants, venture debt or a bank line | Usually yes | Make sure "financing" is limited to equity and convertible instruments, not every form of funding |
| Signing a customer or partnership deal | Yes | Confirm the clause does not restrict ordinary business activity |
The narrower the definition of what you cannot do, the less chance of an accidental breach.
Common mistake
Signing a no-shop that defines "alternative transaction" so widely that it covers grants, debt, a strategic partnership or even a small bridge from existing investors. Founders then discover that the operating decisions they need to make during a slow close are technically restricted. Read the definition, not just the headline, and ask your lawyer to narrow it to competing equity financings.
How to negotiate a no-shop before you sign
Your leverage is highest in the days between receiving a term sheet and signing it. That is when to raise exclusivity, calmly and specifically. Here is a sequence that works for most rounds.
- Read the whole clause with your lawyer. Identify who is bound, what is restricted, how long it runs and what ends it early. Write a one-paragraph summary in plain English so everyone on the founding team understands it.
- Ask for a shorter period. If the draft says 60 days, ask what diligence remains and propose 30 or 45 days with a written option to extend by mutual agreement. Investors who are organized rarely object.
- Add exit triggers. Ask that exclusivity ends automatically if the investor withdraws the term sheet, proposes materially worse terms, or misses an agreed milestone such as delivering draft documents within a set number of days.
- Narrow the scope. Limit the restriction to competing equity or convertible financings. Carve out existing investors, grants, debt and ordinary commercial deals.
- Set communication rules. Agree a weekly check-in and name one person on each side responsible for progress. Most slow closes are communication failures, not legal ones.
- Line up the closing conditions. Confirm what still needs to happen: board approval, signed documents, legal opinions and completed due diligence. Put a target close date next to each one.
- Sign when you are ready, not before. If other investors are close to issuing term sheets, you may ask for a few days before you sign so you can compare offers. Once you sign, that window shuts.
Hypothetical example
Imagine Dana, who runs a small analytics startup, receives a seed term sheet in late September with a 60-day no-shop. Two other funds have said they expect to decide within a week. Dana asks the lead for five days before signing, explains why honestly, and uses the time to hear from the other funds. One passes, one offers similar terms. Dana then goes back to the original lead, accepts, and negotiates exclusivity down to 40 days with an automatic end if draft documents are not delivered within 10 business days. The round closes before the year-end slowdown. The details are made up; the sequence is the point.
Exclusivity around the fall fundraising season
Timing deserves a word, because a no-shop interacts with the calendar. Many funds are busiest from September through mid November, then slow down as the holidays approach. If you sign a 60-day exclusivity in late September, your window ends in late November, right as decision makers start to disappear. If the deal slips, you may find yourself waiting until January to restart conversations.
Two practical responses. First, push for the shortest realistic period when you sign in the fall, and ask for a target close date before the holidays. Second, if the investor's own process means a close before December is unlikely, consider whether a shorter bridge from existing backers, often done as a SAFE or convertible note, buys you the time to finish the round on your terms rather than under pressure.
Pro tip
Keep a simple log during exclusivity: date, what you sent and who owns the next step. It turns any later request for an extension into a factual conversation.
What if an investor breaks the deal during exclusivity?
Term sheets are usually non-binding on price and terms, so an investor can walk away during exclusivity without legal penalty in most cases. That is uncomfortable, but it is normal, and it is the main reason you negotiate short periods and early-exit triggers. A few things soften the risk:
- Reference the investor before you sign. Ask other founders in their portfolio how the process went from term sheet to close and whether the terms changed along the way.
- Watch the diligence pace. Steady requests and quick replies suggest commitment. Long silences often precede a change of heart.
- Keep the data room current. If the deal falls through, a tidy data room lets you restart with other investors in days rather than weeks.
- Ask about a break fee only if it fits. It is uncommon at early stage, but your lawyer can tell you whether it is reasonable.
Common mistake
Going quiet with every other investor the moment you sign. Exclusivity stops you negotiating with them; it does not stop you from being gracious. A short note saying you have accepted a term sheet and will be in touch after the process keeps relationships warm for the next round, or for this one if things change.
Your no-shop checklist
- Read the exclusivity clause line by line with a startup lawyer
- Confirm who is bound and what counts as a restricted "alternative transaction"
- Negotiate the period toward 30 to 45 days with a written extension option
- Add automatic exit triggers for withdrawal, worse terms or missed milestones
- Carve out existing investors, grants, debt and ordinary commercial deals
- List the closing conditions with a target date for each
- Tell other active investors you are in a process before you sign
- Keep a dated log of every step during the exclusivity period
Frequently asked questions
Is a no-shop clause legally binding?
Usually yes. Most term sheets state that the document is non-binding except for a few specified sections, and exclusivity is almost always one of them, along with confidentiality and sometimes legal fees. Breaching it can give the investor a claim against the company, so take it seriously and have a lawyer confirm what is binding in yours.
Can I refuse to sign a no-shop at all?
You can ask, but most lead investors will insist on some form of exclusivity before spending on legal work. A more realistic goal is a short period, a narrow scope and clear exit conditions. If you have several term sheets in hand at once, you have more room to push.
What if another investor contacts me during exclusivity?
Check your clause. Many versions let you say that you are in an exclusive process and will follow up later, and some require you to notify the lead. Do not share terms, documents or negotiate. When in doubt, ask your lawyer before replying.
Does exclusivity cover talking to my existing investors?
It depends on the wording. Well-drafted clauses carve out existing shareholders so they can take up their pro rata rights or join the round. If your draft does not say so, ask for the carve-out before you sign.
Related reading
The bottom line
A no-shop clause is a fair request from an investor who is about to spend time and money closing your round, but it is also a real cost to you, and costs are negotiable. Aim for the shortest period that fits the diligence left to do, keep the scope narrow, build in automatic exits, and agree a communication rhythm before you sign.
Do that, and exclusivity becomes what it should be: a short, focused sprint to a close, rather than a quiet stretch of weeks where your runway shrinks and your options stay locked behind a closed door.
