When Strategic Warrants Turn Into Roadblocks
Three Important Lessons for Founders Navigating Strategic Partnership Deals
Daniel, the CEO of a SaaS startup focused on ESG compliance automation, had just landed the biggest deal of his company’s life. After years of effort, a major global player agreed to a commercial partnership. The agreement included a side letter giving the partner a warrant — a right to future equity based on the value they would help generate. It also required a 90-day advance notice before any acquisition or new funding round.
It wasn’t a Right of First Refusal (ROFR), just a notice clause. At the time, it seemed like a small price for growth. But two years later, that clause became a serious obstacle.
Here are three critical lessons for founders:
1. Long Notice Periods Can Scare Off Buyers
Daniel’s early investors were looking for an exit after five years. Several potential acquirers showed interest — until they saw the 90-day notice requirement. Although it wasn’t a ROFR, buyers didn’t want to commit and then wait three months while another party had early access to their offer.
Worse, the clause didn’t clearly define when the 90 days began. Was it after a verbal agreement, a board vote, or a signed letter of intent (LOI)? This uncertainty alone made the company less attractive.
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2. Strategic Partners Can Limit Growth — Even Without Trying
Other large companies — not competitors, but industry players — backed off from potential partnerships. They worried that any sensitive commercial information could reach the strategic partner. Even if no formal information-sharing clause existed, the perception of bias was enough to block new opportunities.
3. A Founder’s Control Can Erode Over Time
Years after that first deal, Daniel found himself unable to make big decisions — from fundraising to acquisition talks — without looping in the strategic partner. What once seemed like a standard agreement had turned into a de facto veto power over the company’s direction.
How Founders Can Protect Their Flexibility
Founders should have an open, detailed conversation before finalizing any strategic deal. Agree on clear, short-term processes for decision-making.
For example:
- Notify the partner within two business days of receiving an LOI.
- Give them 14 days to submit a competing offer — not a ROFR, just a fair chance to participate.
- Limit any competitive restrictions to specific markets or use cases.
Clauses meant to align incentives can become serious barriers if not carefully structured. Founders must build agreements that support long-term growth — not stall it.