Ask HN: Ever have a customer request a ROFR?

[dCole]

In negotiations with some new customers and have sent them all our standard Service Agreement. Some have asked for revisions but they have all been minor thus far.

One just came back and asked us to include additional language "giving them a Right of First Refusal (ROFR) to invest in all or a portion of the company, to ensure it is not sold to a competitor."

My primary customers right now are banks and they all seem to look at one another as a competitor regardless of how large or small they are.

The request initially seemed like a positive because I'm about to begin fundraising and I figured having a multi-billion dollar financial institution requesting the right to invest/purchase could be seen as plus to prospective investors. However, the more and more I think about i....I think it could potentially restrict growth and may be viewed as a negative by both customers and investors.

Has anyone else ever dealt with a scenario like this before?

[11thEarlOfMar]

I'm not an attorney, but have run across this before. The situation you'd want to avoid is one where a better-fit investor competes with your new customer and your new customer elects to beat their bona fide offer. Then you'd wind up in a worse situation due to the ROFR. You might think about how likely that is to happen.

Also, think about pushing back gently and determine if it is a deal breaker if you don't comply. They are trying to protect themselves, and it may be a standard approach for their legal department to ask for it. Perhaps counter with a commitment to disclose, under NDA, offers from other companies to invest in your company. If the situation ever arises, they can negotiate for a position at that point.

If it is a deal breaker and you still want them as a customer, push for some language that at least requires them to do a meaningful amount of business with you in order to include the ROFR. You might also put time limits on the rights, or require a payment of some sort. Add something that ensures their business is worth the concession.

[dCole]

Thanks for the feedback. It's a $100k/year relationship to start which is slightly above average compared to the other banks we are in negotiations with and will only grow over time. Our smallest customer generates $50k/year which is why I've been stressing over this so much (because each relationship has such a high LTV).

I've already tried gently pushing back and pointed out my concerns that it could potentially restrict growth by making other clients or investors uncomfortable. I suggested a modification that would require us to notify them of any acquisition offers we were considering so they would then have an opportunity to match and they came back and asked for some sort of restricted ROFR related to offers from other banks.

I like your idea about the "meaningful amount of business" language or requiring a payment of some sort. Extra revenue is always nice :)