Pro-rata rights: who gets to keep their share next round.
A pro-rata right lets an existing investor buy enough of your next round to keep their percentage. It is a promise of allocation, so it matters most when your round is in demand.
The short answer
Pro-rata is the right, not the duty, to invest in future rounds to keep your ownership level. On SAFEs it usually comes through a side letter. In priced rounds it sits in the investor rights documents, often only for major investors above a set threshold.
Example: a $5M round, existing investor owns 5% and takes pro-rata
$250K of the round goes to the pro-rata holder
Example arithmetic only. To keep 5%, the holder buys 5% of the new shares: 5% of $5M is $250K.
- New investors: 95%
- Pro-rata holder: 5%
How the arithmetic works
An investor who owns 5% needs to buy 5% of the new shares to stay at 5%. If they skip the round and it sells 20% of the company, they fall to 4%. Taking pro-rata costs them 5% of the round, which in a $5M round is $250K.
Several holders exercising pro-rata can take a real slice of a hot round. That can squeeze a new lead who wants a fixed percentage, so leads sometimes ask existing investors to waive or cut back.
Where the right is written down
The standard post-money SAFE does not include pro-rata on its own. Investors who want it usually sign a separate pro-rata side letter. In a priced round, the right is normally in the investor rights agreement and is often limited to investors who hold above a set amount, called major investors.
- Which investors have pro-rata today, and in which document?
- Is the right limited to major investors?
- Does it cover only the next round or every future round?
- Will the new lead's allocation still fit after pro-rata?
Terms to know
Pro-rata right
The right to invest in later rounds to keep your ownership percentage.
Major investor
An investor above a set holding threshold who gets extra rights.
Side letter
A separate agreement adding rights to a standard document.
Will your deck make existing investors want their pro-rata?
Insiders who take pro-rata send a strong signal to new leads. Upload your deck and we show you whether your progress since the last round comes through.
Questions founders ask
Do I have to give every investor pro-rata?
No. It is negotiated. Many companies grant it to larger checks only, to keep later rounds manageable.
What if an investor cannot take their pro-rata?
The right lapses for that round, or the allocation passes to others if your documents allow it. They are diluted like everyone else.
Sources
Sources: YC post-money SAFE and pro-rata side letter guides; standard US investor rights practice. Not legal advice.
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