Continuing yesterday’s post, I’m still riding shotgun for the founder of a company that raised VC funding as he negotiates selling his company.

Competition usually leads to higher prices. It’s the law of supply and demand. If supply is fixed (or limited) and demand increases, pricing usually increases too.

When a term sheet or letter of intent (LOI) is presented to the selling company, an exclusivity clause may be included. This usually means the seller can’t negotiate with another party until a defined date has passed. This clause comes in many flavors, but you get the gist.

The upside may be that the seller is serious and wants to complete the deal quickly, so it wants both sides to be fully focused on closing. The downside is that the seller may not be fully committed or may not have secured the funds to close the sale, and the clause gives it time so it doesn’t have to worry about the deal being snatched from under it. The clause also reduces the likelihood that the deal price will increase due to a competing bid from another suitor.

Exclusivity clauses show up in lots of other types of contracts and agreements, too. Still, it’s a clause that entrepreneurs should be aware of and discuss with their legal counsel before signing an LOI.