VC & PE Glossary
What Is Exclusivity?
Updated
Definition
Exclusivity is a negotiated period—often in a term sheet or letter of intent—during which a company agrees not to shop the deal to other buyers or investors while the counterparty completes diligence and documentation.
Useful for: Founders, Investors
Exclusivity is a binding commitment that limits a company’s ability to solicit or accept competing offers for a defined window while one investor or acquirer advances toward signing definitive agreements.
How it works
Exclusivity usually appears in a letter of intent or term sheet after preliminary agreement on price and structure. Typical venture financings grant the lead investor 30–45 days of no-shop rights while lawyers draft the stock purchase agreement and the lead completes confirmatory diligence. M&A exclusivity can run 45–60 days or longer, sometimes with extensions if milestones are met.
The clause defines permitted exceptions—existing conversations disclosed in a schedule, unsolicited inbound offers that must be forwarded, or fiduciary outs for boards in sale processes. Breaking exclusivity may trigger a break-up fee or expense reimbursement; enforcing exclusivity against a founder who takes a superior offer is legally messy, so parties rely on reputational and fee remedies.
Founders should negotiate carve-outs for ongoing investor updates that do not constitute a competing round, and tie extensions to concrete progress—not automatic rollovers.
Why it matters
- Founders: Short, well-scoped exclusivity preserves optionality if the lead re-trades price or drags diligence. Parallel soft circles should pause or convert before exclusivity starts.
- Investors: Exclusivity protects sunk diligence cost and syndicate assembly time; abuse it and you damage deal reputation in tight markets.
Common mistake
Signing exclusivity before key terms are settled, then discovering the counterparty uses the lock-up to slow-walk renegotiation. Align exclusivity start with signed term sheet economics, not a vague MOU.
Related ideas
See letter of intent, break-up fee, no-shop, and go-shop period.
Related terms
- Break-Up Fee — A break-up fee is a contractual payment owed if one party terminates an M&A agreement under specified conditions — often when the seller accepts a superior offer after signing exclusivity with a first buyer.
- Letter of Intent — A letter of intent (LOI) is a non-binding or partially binding document that outlines the key terms of a proposed deal — acquisition, partnership, or major contract — before full definitive agreements are drafted.
Common questions
Short answers for founders, LPs, and operators