Pro Rata Rights
The right of existing investors to participate in future funding rounds to maintain their proportional ownership percentage.
Definition
Pro rata rights give existing investors the option to invest in subsequent financing rounds in proportion to their current ownership. This allows them to prevent dilution of their ownership stake by investing additional capital when the company raises new funds.
How It Works
- • Investor has right, but not obligation, to participate
- • Must invest proportionally to maintain percentage
- • Usually applies to major investors and VCs
- • Typically time-limited (30-60 days to decide)
- • Can transfer unused rights to other qualified investors
- • Often includes overallotment rights for unused allocations
Real-World Example
Investor Protection: VC owns 20% of company and has pro rata rights
When company raises $10M Series B, the VC can invest $2M (20% of the round) to maintain their 20% ownership stake.