Pro-rata Rights

Definition

The right for existing investors to maintain their ownership percentage by investing in future rounds. It's investor speak for 'we get first dibs on new money.'

Example Usage

Our Series A investors negotiated pro-rata rights, which means they'll invest $2M in our Series B to keep their 10% stake.

Origin

Legal terminology adopted from corporate law into venture capital

Fun Fact

Pro-rata rights are standard in most venture deals and can significantly impact a startup's ability to raise from new investors

Source: Venture capital legal terminology

Related Terms

Intermediate

information rights

Contractual provisions granting investors access to a startup's financial statements, board minutes, and other operational data. Essentially, the legal right to know how badly founders are spending their money.

🚀 Startup / VC

Intermediate

broker

Financially obliterated; what happens when you've spent all your capital on ideas that looked good on a napkin at 2 AM. A state every entrepreneur fears and half have experienced.

🚀 Startup / VC

Beginner

Seed Funding

The initial capital injection used to plant your business idea and hope it doesn't get eaten by birds before it sprouts.

🚀 Startup / VC

Advanced

redemption rights

Contract provisions allowing investors to force the company to buy back their shares after a certain period, typically if there's no exit. A rarely exercised nuclear option that reminds founders who really has the power.

🚀 Startup / VC

Intermediate

prospectus

The glossy sales document that makes every investment opportunity look like the next Amazon and every university look like Hogwarts, carefully balanced between legal obligation and marketing fantasy. In startup land, it's the formal document that transforms 'three guys in a garage with an app idea' into 'disruptive technology platform poised for exponential growth.' Every prospectus contains enough disclaimers to absolve everyone of everything while somehow still convincing you to hand over your money.

🚀 Startup / VC

Advanced

synthetic exit

Restructuring that gives early investors and employees liquidity without selling the company, like a pressure release valve for cap table tension. An exit without the exit.

🚀 Startup / VC

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