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Fundraising for Startups
Buy the Shop
VCs & Entrepreneurs would be better off replacing the No Shop
TL;DR: Many if not most fundraising rounds today involve a No Shop period, when the company raising money needs to stop all fundraising activity while the investor conducts due diligence. This No Shop period, however, is harmful to Startups, and its accepted practice is a detriment to company momentum. As investors feel greater pressure from Tiger Global and other funds adopting their velocity investment practice, an alternative to the No Shop investors can deploy is the Buy the Shop: a time limited convertible note with a right to negotiate or first refusal on the sale of a company’s equities. A Buy the Shop enables investors to do the diligence they need, and for entrepreneurs to focus on building their companies.
If there is one thing that continues to make VC especially un-founder friendly, it is the No Shop period. For those who are not yet at that stage of fundraising negotiation, most Venture Capitalists (VCs) will require the Startup raising money to agree as part of the Term Sheet to what is known as a ‘no shop’ guarantee. During this period, the company agrees to not shop the deal around to other investors for a period of between 30 and 60 days, in order for the VCs to have time for proper due diligence on the company.
