VC & PE Glossary
What Is Right of First Refusal (ROFR)?
Updated
Definition
A right of first refusal (ROFR) lets a designated party match a bona fide third-party offer to buy shares — the seller cannot sell on better terms without offering the ROFR holder the same deal.
Useful for: Founders, Investors
Right of first refusal (ROFR) is the right to purchase shares on the same terms as a third-party buyer before the seller completes an outside transfer.
How it works
An employee receives a $5/share offer for common stock. Shareholder agreement requires notifying the company and major investors. Each ROFR holder has a set period — often 30 days — to match.
If the company exercises ROFR, it buys the shares (sometimes reallocating among investors). If all pass, the employee closes with the outside buyer at no better terms than disclosed.
ROFR stacks with co-sale (tag-along) rights: when founders sell, investors may join the transaction pro rata. Transfer restrictions also block gifts or pledges without board consent.
Company ROFR protects against unknown shareholders; investor ROFR protects pro rata and strategic interests.
Why it matters
- Founders: Secondary liquidity often needs board and ROFR waivers; start the process before you need cash.
- Investors: ROFR is standard control mechanics — exercise decisions affect ownership and competitor blocking.
Common mistake
Sharing a term sheet with a buyer before giving ROFR notice. Many agreements void sales if process order is wrong, restarting the clock.
Related ideas
See also ROFO, ROFR/co-sale agreement, co-sale, and cap table.
Related terms
- Right of First Offer (ROFO) — A right of first offer (ROFO) gives a party the chance to buy shares on the same terms a seller intends to offer a third party — usually before the seller shops the deal widely.
- ROFR/Co-Sale Agreement — A ROFR/co-sale agreement is the standard VC contract combining right of first refusal, company approval of transfers, and co-sale (tag-along) rights when shareholders sell stock.
Common questions
Short answers for founders, LPs, and operators