Right of First Refusal (ROFR) 

A Right of First Refusal (ROFR) is a contractual provision granting an existing investor, shareholder, or stakeholder the right to purchase an asset or equity stake before it’s offered to external parties. If the holder of a ROFR declines the opportunity, the selling party is then free to offer it to third parties. 

In venture capital and private equity, ROFRs are typically included in shareholder agreements, term sheets, and funding contracts. They: 

• Protect existing investors from dilution by giving them priority access to new shares. 

• Maintain strategic or control positions in a company. 

• Allow early investors to maintain their percentage ownership without competitive bidding. 

While advantageous to investors, ROFRs can complicate deal-making by potentially deterring new investors or delaying transactions.