Exclusivity Period

Due diligence takes real time and money. No AIF wants to spend weeks checking a company's books only to find the founders sold to someone else in the meantime.

The exclusivity period is the term sheet's answer to that risk. For an agreed window, the company commits not to shop the deal to other investors. In exchange, the AIF commits its own time and resources to actually closing the transaction.

The workbook treats this as one of several standard items a term sheet fixes, alongside the investment amount, board seats and key investor rights — all aimed at replacing vagueness with a clear, precise understanding between the two sides.

The term sheet — also called a non-binding Letter of Intent (LOI) or a Summary of Principal Terms (SOPT) — lists the exclusivity period among its standard contents, alongside the proposed transaction, investment amount, post-acquisition capital structure, board seats, key investor rights, management terms and conditions precedent.

The workbook explains its purpose directly: the term sheet "would also establish commitment from both sides (due to the exclusivity in the transaction) so that the transaction may be concluded expeditiously in the mutual interest."

The workbook does not give a specific number of days or months for the exclusivity period — unlike the term sheet's own validity period, which it separately describes as usually extendable by mutual consent. The length of exclusivity is left to negotiation between the parties, not fixed by regulation.

Kaveri Capital's term sheet to invest Rs 45 crore in a specialty-chemicals company includes a clause: for 60 days from signing, the company will not solicit, negotiate with, or accept any competing investment offer.

Within that window, Kaveri completes its due diligence review and negotiates the definitive agreements. On day 55, a rival private equity fund approaches the company with a higher offer; because the exclusivity clause is still running, the company's founders decline to engage, and Kaveri closes on schedule at the originally agreed terms.

Had the exclusivity period instead been silent or already expired, the company would have been free to negotiate with the rival fund even while Kaveri was still completing its due diligence.

Chapter 7 (Investment Process and Governance of Funds), section 7.1.4 (Preliminary Investment Memorandum and Term Sheet), lists the exclusivity period among the term sheet's standard contents and explains why it matters for concluding the transaction expeditiously. Expect a question naming the exclusivity period as a term-sheet clause, or testing whether it is legally binding.

• The term sheet as a whole creates no contractual rights, but the workbook still describes exclusivity as producing 'commitment from both sides.' Treat this as the workbook's own framing of practical pressure to close the deal, not a claim that the clause is separately enforceable in law.
• The workbook gives no fixed duration. Any specific number of days in an exam question is illustrative, not a statutory figure to memorise.
• Do not confuse the exclusivity period with the term sheet's validity period. Validity is about how long the parties have to complete the transaction; exclusivity is about the company not shopping the deal elsewhere during that time.
• Exclusivity binds the company, not the AIF. It restrains the investee company from talking to other investors — it does not commit the AIF to invest.