Pro rata rights can be given to an investor that allows them to maintain their initial level of ownership percentage during later financing rounds.
Pro rata rights, also known as participation rights, give investors the right to maintain their proportionate ownership in a company by allowing them to purchase shares in any new equity offering. This means that if a company conducts a new round of funding, and you have pro rata rights, you will have the opportunity to invest in that round in proportion to your current ownership stake in the company. This can be important for maintaining your level of ownership in the company and avoiding dilution of your investment.
Pro rata rights are different from other types of investor rights in that they provide a specific mechanism for maintaining ownership in a company. For example, anti-dilution rights protect investors from dilution of their ownership stake, but do not provide an opportunity to increase ownership. Whereas, pro rata rights give an opportunity to maintain and increase ownership.
Pro rata rights do not directly impact your ability to sell shares in the future, but they can impact your ownership stake in the company. By allowing you to maintain your proportionate ownership, pro rata rights can help ensure that you have a meaningful stake in the company that may be more attractive to potential buyers. However, it's important to note that pro rata rights are not a guarantee that the value of your shares will increase.
Pro rata rights are typically outlined in a company's term sheet or investment agreement. Be sure to review these documents carefully and consult with your financial advisor to understand the specifics of pro rata rights being offered by a company.
Yes, as an investor you can choose to waive your pro rata rights if you so choose. However, this decision should be made with caution and after careful consideration of your investment objectives and the potential impact on your ownership stake in the company.