# Pro Rata Rights

## Quick Definition

The right for existing investors to participate in future funding rounds to maintain their ownership percentage.

## What are Pro Rata Rights?

Pro rata rights give existing investors the right (not obligation) to invest in future rounds to maintain their ownership percentage. If you own 10% and have pro rata rights, you can invest enough in the next round to keep owning 10%.

Pro rata is Latin for "in proportion." These rights protect early investors from being diluted out as the company raises more money.

## Why Pro Rata Rights Matter

For investors: Pro rata lets them double down on winners. An investor who got 10% at seed can maintain that 10% through Series A, B, and beyond if the company succeeds.

For founders: Pro rata can complicate fundraising. If existing investors want to exercise pro rata, there's less room for new investors. Some new investors require existing pro rata to be waived.

## Pro Rata Considerations

- **Super pro rata**: Right to invest more than your percentage (rare).
- **Major investor thresholds**: Only investors above a certain size get pro rata.
- **Pay-to-play**: Investors who don't exercise pro rata lose other rights.

### Formula

Pro Rata Investment = New Investment × (Your Ownership % ÷ New Investor Ownership %)

Or: Pro Rata Investment = New Round Size × Your Current Ownership %

### Example

You own 10% after Series A. Series B terms:

- New investment: $10M for 20% of company
- Your pro rata right: maintain 10% ownership
- Your pro rata investment: $10M × (10% ÷ 20%) = $5M

Without pro rata, your 10% dilutes to 8%. With pro rata (and $5M), you stay at 10%.

## Related Terms

- **Dilution**  
  The reduction in ownership percentage when new shares are issued, occurring during funding rounds and equity grants.
- **Anti-Dilution**  
  Protection that adjusts an investor's share price if the company later raises money at a lower valuation.
- **Term Sheet**  
  A non-binding document outlining the key terms of a proposed investment before final legal documents are drafted.

## Learn More About Pro Rata Rights

**Fundraising How Multiple SAFEs Dilute Your Cap Table**  
Learn how stacking multiple SAFEs with different valuation caps creates unexpected dilution. Discover the conversion mechanics most pre-seed and seed founders miss.  
Read article.