Pro-Rata Rights

Pro-rata rights (also called pre-emptive rights) give an investor the option to participate in future funding rounds in proportion to their current ownership. If an investor owns 10% of a company, pro-rata rights let them invest enough in the next round to keep owning 10% after dilution.

These rights are valuable for investors because ownership percentage determines exit returns. Without pro-rata rights, early investors get diluted by every subsequent round and their stake — even in a successful exit — can shrink significantly.

For founders, pro-rata rights create complexity: you must reserve allocation for existing investors at each round, which can limit how much you can offer new investors. Sophisticated founders limit pro-rata rights to their most valuable investors.

Indian term sheets routinely include pro-rata rights as a standard clause. SEBI's AIF regulations require that fund managers treat all investors in a fund fairly, which often means they must exercise pro-rata rights to maintain proportional ownership. Angels on platforms like LetsVenture may or may not have pro-rata rights depending on whether they invested through a SPV or directly.

A common India nuance: super pro-rata rights — the right to invest more than your proportional share — are sometimes demanded by seed investors who want to increase ownership at Series A. This can conflict with Series A lead investors who want control of round allocation.