No-Shop Agreement



Updated September 15, 2023
Raising Venture Capital

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Definition The no-shop agreement (no-shop clause or no-shop provision) in a term sheet is a confidentiality agreement prohibiting founders from using the term sheet to solicit offers from other potential investors.

Including the no-shop agreement means investors don’t want you using the terms of their deal to gain leverage with another firm—allowing it will let investors know you’re pursuing this term sheet in good faith.

Management Rights Letter

Definition A management rights letter is a statement from a company that outlines the extent of an investor’s power to review and influence how the company operates. Term sheets may specify that the company provide this letter when the financing deal is closing and/or at the investor’s request.

Pension funds are subject to heightened rules for fund management under the Employee Retirement Income Security Act (ERISA), which protects individuals’ retirement and health savings, and they may act as limited partners in venture capital funds. When this happens, venture capital funds run the risk of also being subjected to the ERISA rules. To avoid this, they often seek management rights letters to support a claim that they should be exempt from ERISA.*

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