As a Saudi startup, what protections should we negotiate in a PE term sheet before signing exclusivity?

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A 60-day exclusivity period is standard in Saudi private equity deals. Break fees are negotiable—clarify their amount and try to limit them. Expect investors to seek board seats and veto rights, but negotiate to keep operational control and limit vetoes to major issues. Anti-dilution clauses are common, but ask for weighted average terms. For due diligence, set confidentiality boundaries and restrict access to sensitive info. Always protect your control and negotiate any terms that feel too restrictive.

60-Day Exclusivity: Acceptable if conditional upon actual progress in due diligence and closing of the transaction.
Reject any unconditional termination fees or fees exceeding actual expenses (approximately 1–2%).
Control Rights: One board seat or observer + limited protection rights on material decisions only.
Reject an operational veto or a pre-closing board majority.
Mitigation: Weighted-average protection + pro-rata right.
Reject a full-ratchet or a fixed ownership percentage guarantee.
Access to Information During DD: Via data room and under an NDA with sensitive exceptions.
Reject direct contact with clients/employees or use of information for other transactions.
Summary: Accept conditional exclusivity + weighted protection; reject absolute termination fees, early control, and a full-ratchet.

When negotiating a private equity (PE) term sheet in Saudi Arabia, especially as a startup facing a 60-day exclusivity period and a break fee, it’s crucial to carefully review and protect your control, dilution, and operational rights before signing anything. Here’s a practical guide tailored to the Saudi market and startup investors.

1. Exclusivity Period
Typical practice: 30–60 days is common, but longer periods can limit your ability to explore other offers.
Negotiation tip: Consider shortening the exclusivity period or adding a clause allowing termination if the investor fails to meet key milestones in due diligence. This prevents being “locked out” while the fund conducts slow assessments.

2. Break Fee
Red flag: Break fees can be costly and enforce strict penalties if you engage with other investors.
Negotiation tip: Limit or remove the break fee. If unavoidable, cap it at a nominal amount or make it payable only if the startup actively breaches confidentiality or exclusivity.

3. Control Rights
Watch for board seats, veto rights, or operational approval clauses that could limit your decision-making.
Saudi market standard: PE investors usually ask for minority protections such as information rights, anti-dilution protection, or consent for major transactions—but not day-to-day operational control.
Push back: Ensure the founder retains strategic control over hiring, business operations, and capital allocation.

4. Dilution and Valuation
Clarify how future rounds of financing may dilute your ownership.
Standard practice in Saudi Arabia includes pre-emptive rights and anti-dilution clauses, but ensure they don’t disproportionately favor the investor at the expense of founders.

5. Information Access
PE investors may request financial, operational, and legal documents for due diligence.
Negotiate confidentiality and limit access to sensitive IP or proprietary information. Consider a non-disclosure agreement (NDA) before sharing detailed data.

6. Other Market-Standard Terms
Right of First Refusal (ROFR): Investor may want ROFR on future shares—ensure this is balanced.
Drag-Along / Tag-Along Rights: Standard but should be carefully scoped to not force unwanted exits.
Conditions Precedent: Make clear what the investor must deliver before signing the investment agreement.

Key Takeaway: Never sign exclusivity without ensuring you’re protected on control, dilution, and confidentiality. Negotiating favorable founder-friendly terms can prevent losing strategic flexibility or ownership.

Bin Hammad Law Firm in Riyadh advises Saudi startups on private equity term sheets, founder protections, negotiation strategies, and due diligence compliance.

They help startups ensure market-standard terms are respected and prevent unfavorable obligations during exclusivity and investment discussions.