not go looking for a “better” deal from a different investor. The purpose should be obvious: to allow VCs to complete their due diligence on a company without having to worry that the entrepreneur will be using the time to find more favorable terms from some other VC. That’s fair and proper.
There is no “average” length for a no-shop clause. In some cases, they needn’t be longer than a few weeks, while in some deals—such as when final funding depends on a key technical hire, like a CTO—they can stretch out for several months.
It’s these longer no-shop clauses that should be cause for concern. Again, there are many cases when a period of 60 or 90 days is entirely justifiable. But I am also aware of a small number of VCs who, when working with companies who are precariously funded, deliberately write in a long no-shop clause into a term sheet.
At the end of the period, the company is out of money—exactly as the VC envisioned. Since the entrepreneur at this point is out of options, he/she is basically forced into a new round of financing that essentially gives away control of the undertaking to venture “partners.”
Fortunately, these stories are exceedingly rare. In fact, at Claremont Creek Ventures, we sometimes have short duration no-shop clauses or skip them altogether. Like most VCs, we are as excited about great companies as the entrepreneurs with whom we’re working.
Our goal is to convince an entrepreneur to partner with us not on account of a few lawyerly paragraphs in a term sheet, but by persuading them of the great things that can be built by marrying their passion with our experience and our passion for great ideas.
The bottom line is to remember you want to work with venture capitalists who think like entrepreneurs and with whom you can build a long-term relationship. That’s the key to success.
