Pro-Rata Rights
Your Right to Maintain Ownership
Definition
Pro-rata rights grant investors the option to participate in future funding rounds to maintain their ownership percentage. This prevents automatic dilution and allows investors to protect their stake in the company.
In Simple Terms
Pro-rata means "in proportion." If you own 10% of the company, pro-rata rights let you invest more in the next round to keep owning 10% instead of shrinking to 7%. It's the right to maintain your slice of the pizza.
Why It Matters
Pro-rata rights protect investors from dilution. In fast-growing companies, early investors use pro-rata to maintain or increase their stake in subsequent rounds. It's a valuable right that serious VCs negotiate for in every term sheet.
Example
Investor A holds 10% after Series A. Series B requires $10M. Investor A can exercise pro-rata to invest $1M (10% of the round), maintaining their 10% ownership instead of being diluted to 7.5%.