Pro rata rights

What is pro rata rights?

Pro rata rights let an existing investor buy enough of a future round to keep their ownership percentage from shrinking. If they own 10% and you raise a new round, they can invest enough to stay at roughly 10% instead of getting diluted. It's a contractual right, usually negotiated into the term sheet.

Worked example

Why it matters for fast-growing companies

Pro rata rights sound harmless, but they hand a slice of every future round to existing investors before you can offer it to new ones. That can crowd out a hot lead who wants more of the round. Track exactly who holds these rights so your next raise doesn't get awkward.

Related terms

• Fundraising & equityDilutionDilution is the reduction in your ownership percentage when a company issues new shares, typically in a funding round or when expanding the option pool.
• Fundraising & equityFunding rounds (seed to Series C)Funding rounds are the sequential stages a company raises equity through as it grows, typically pre-seed, seed, then Series A, B, and C.
• Fundraising & equityTerm sheetA term sheet is a short, mostly non-binding document that lays out the key terms of a proposed investment, valuation, amount raised, liquidation preference, board seats, and investor protections, before lawyers draft the final deal.
• Fundraising & equityValuation capA valuation cap is the maximum company valuation at which a SAFE or convertible note turns into equity, no matter how high the priced round's valuation actually lands.

Frequently asked questions