An investor's right to participate in future funding rounds to maintain their ownership percentage. Helps investors avoid dilution, but can complicate later rounds if too many investors have these rights.
Why it matters
Pro-rata rights let investors maintain their ownership percentage as you raise more money. They're standard in venture deals and important to understand because they affect how much room there is for new investors in future rounds. Granting too many pro-rata rights early on can limit your flexibility later.
How it works
If an investor owns 10% of your company and you raise a new round, pro-rata rights give them the option to invest enough to keep their 10%. They don't have to exercise this right, but having it gives them leverage. In Y Combinator's post-money SAFE, pro-rata rights are handled via a separate side letter rather than being built into the SAFE itself. For example, if a $5M round is being raised and an investor with 10% ownership has pro-rata rights, they can claim $500K of that round before new investors get their allocation.
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