Priced rounds and term sheets
ROFR and co-sale
How the company and investors can match a founder share sale, and sell alongside it.
Right of first refusal (ROFR) means that if a founder finds a buyer for their shares, the company and/or investors can match the price and buy instead. Stock stays inside the current cap table.
Co-sale (tag) means that if a founder sells to a third party after ROFR, investors may sell a proportionate amount alongside.
Together they restrict founder liquidity. That is intentional — investors underwrote a committed team — but extreme versions can block reasonable secondaries or employee tender participation.
The big idea
A house with a neighbors-first sale clause is ROFR: the current owners may match any outside offer. Co-sale is the neighbors' right to sell a slice of their own house into that same outside offer. The analogy breaks on tenders: company-sponsored liquidity usually amends or waives ROFR in a controlled way, rather than running twenty private matches.
Negotiate:
- Reasonable ROFR exercise windows (days, not months of limbo)
- Exceptions for estate planning, small gifts, court orders
- Clarity on how tenders and company-sponsored secondaries interact
Walking through it
A founder finds a secondary buyer at $4.00/share for 200,000 shares. ROFR gives the company (then investors, depending on the stack) a window — say 20 days — to buy at $4.00. If they pass, co-sale lets investors sell a proportionate slice to that same buyer so the founder cannot take all the liquidity.
Company-sponsored tenders usually waive or batch ROFR so employees can sell a fixed amount in one process. Ad hoc founder sales to random buyers without respecting ROFR can breach the voting agreement and poison the next financing. If you plan liquidity, design it with the board. Do not freelance.
Information rights sit in the same documents: major investors typically get monthly or quarterly financials, annual budgets and inspection rights. Standard and healthy if you want help. Painful if 40 angels each demand a custom report. Set a threshold (for example $1M+ holders). One monthly metrics email and one quarterly packet scale; twenty custom updates do not.
Redemption rights let preferred force a buyback after a long-dated trigger (5+ years). Rarely exercised as written — companies lack cash — but they create leverage. Push back at seed and Series A.
Common mistakes
- Windows measured in months. A buyer will not wait. The secondary dies and so does morale.
- No estate-planning exception. Founders trip a ROFR on a living trust.
- Freelancing a sale. Skipping ROFR is how the next lead's counsel stops the round.
Check yourself
A founder finds a secondary buyer. What can investors do before that sale closes?
Match the price under ROFR, and if they pass, often sell a proportionate amount under co-sale.
Why do company-sponsored tenders usually waive ROFR?
So many small sales can close in one controlled process instead of a match on every employee.
Key takeaways
- ROFR lets the company or investors match a founder sale; co-sale lets them sell alongside.
- Keep windows short and exceptions sane so planned secondaries still work.
- Do not freelance transfers. Design liquidity with the board.
Further learning
Related
Control terms
Board seats, vetoes, drag-along, pro-rata and ROFR — who can force a sale, block a raise, or fire a CEO.
Secondaries and tender offers
Liquidity before exit for founders and employees: secondary sales, tender offers and their rules.
Drag-along and tag-along
How a majority can force everyone to sell, and how a minority can join a sale they did not start.