Pro Rata Rights

Explained & what to consider when granting them

Table of Contents

What are Pro Rata Rights?

What to consider when granting Pro Rata Rights

What are Pro Rata Rights?

If you're a Founder, chances are you've been approached by an investor who wants to invest in your company. One of the things they might ask for is something called "Pro Rata Rights." But what are Pro Rata Rights? And when, as a Founder, should you give them to investors?

Pro Rata Rights basically give investors the right to maintain their percentage ownership stake in a company as it raises money from other investors. So, if an investor owns 10% of a company and the company goes out and raises $1 million from other investors, that original investor would have the right to buy $100,000 worth of the new shares being offered in order to maintain their 10% ownership stake.

What to consider when granting Pro Rata Rights

There are a few different schools of thought on when Founders should give Pro Rata Rights to investors. Some people believe that it's always a good idea to give Pro Rata Rights because it shows that you're confident in your ability to raise money and grow the company. Other people believe that you should only give Pro Rata Rights to investors who have invested early on and have taken a higher risk by investing before the company has proven itself.

At the end of the day, it's up to the Founder to decide whether or not to give Pro Rata Rights to investors. There is no right or wrong answer; it all depends on the individual situation.

In Conclusion

So, there you have it! A brief overview of what Pro Rata Rights are and when Founders should give them to investors. As with everything else in business, there is no one-size-fits-all answer—it all depends on your individual situation. But hopefully this gives you a better understanding of what Pro Rata Rights are and how they can impact your business.

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