What is a no shop provision?

Once the parties agree on the major terms of the deal and a term sheet is signed, investors start a due diligence process. Attorneys, accountants, and other professionals get involved. It is quite an expensive and time-consuming undertaking. Investors want to have an opportunity to evaluate the company and don’t want to extend their resources on due diligence if entrepreneurs continue shopping around after the offer was made and potentially accepted. A no shop provision is usually limited to a number of days, 35 to 50, which is considered enough time to complete due diligence.

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