What is Pro Rata?
An investor's right to buy shares in later rounds so their ownership percentage stays the same. It lets an early investor avoid dilution in a company they still believe in, at the cost of new money each round.
buys 1 of 5 new · 3 of 15 · still 20%
Pro rata rights let an investor…
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In real work
Kenji used his pro rata in the Series A, putting $100,000 into the $5 million round to keep his 2 percent stake in the freight-routing startup.
In the illustration
The early investor's row holds 2 of the rack's 10 blocks, 20%. A new round stamps 5 more: the reserved slot takes the first, paid for with a coin into the company till, and the other 4 go to the new investors' row. 3 of 15 is still 20%.
In your deal notebook, work out what my pro rata right costs: I own 2 percent and the next round raises $8 million and sells 20 percent. Show the arithmetic, then my stake if I skip the round.
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