Pro-rata rights, also known as subscription rights or preemptive rights, refer to a clause in an agreement that gives an investor in a company the right to participate in future fundraising rounds to maintain their percentage ownership.
When a company goes through further rounds of fundraising, new shares are issued. If an investor does not buy a proportionate amount of these new shares, their percentage stake in the company will be diluted. Pro-rata rights allow the investor to purchase enough shares in the new fundraising round to maintain their original ownership percentage.
This right is important for venture capital firms and other early-stage investors, as it allows them to maintain their influence in a company as it grows and raises additional capital. However, whether an investor gets pro-rata rights will depend on their agreement with the company.
