Right of first offer (ROFO) is a contractual right to purchase shares on proposed terms before the seller solicits or accepts an offer from others.

How it works

Founder wants to sell 500K common shares. ROFO requires notice to the company or major investors: “I intend to sell at $4.00/share to an outside party.” ROFO holders have a window (often 15–30 days) to buy on those terms.

If they pass, the seller may proceed with the third party — sometimes subject to price floors or ROFR on the final binding offer.

ROFO is softer than ROFR: ROFO lets the seller set initial terms; ROFR typically lets the holder match a third-party bid after terms are known. Documents often combine both in investors’ rights agreements.

Secondary programs and tender offers negotiate ROFO waivers so employees can sell without sequential insider processes.

Why it matters

• Founders: ROFO can slow personal liquidity; plan timelines before signing employment and shareholder agreements.
• Investors: ROFO protects against surprise cap table entrants and helps funds manage pro rata in insider sales.

Common mistake

Confusing ROFO with ROFR. ROFO runs earlier in the process; ROFR matches a finalized outside offer — sequencing and deadlines differ materially.

Related ideas

See also ROFR, ROFR/co-sale agreement, drag along, and secondary sale.