Pro-Rata Rights
Definition
A contractual right granted to existing investors to participate in future financing rounds in proportion to their current ownership, enabling them to maintain their percentage stake and avoid dilution. Pro-rata rights are a standard feature of institutional venture investment and are negotiated in term sheets as either contractual rights or side letter provisions. Exercising pro-rata in strong follow-on rounds is a primary value-preservation mechanism for early-stage investors.
Related Terms
Related FAQ
What is pay-to-play and why do some investors demand it?
Pay-to-play means existing investors must participate in future rounds (pro-rata rights) or lose their anti-dilution protection, ensuring committed long-term support.
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