Why Super Pro-rata Rights are Not a Good Deal for Entrepreneurs | BUSINESS and more | Scoop.it

Yesterday I saw a Tweet from Chris Sacca fly by that prompted me to want to write a blog post helping entrepreneurs understand why they should push back against VCs asking for “super pro-rata” rights. I’ll explain what they are and why you should avoid them if you can.

 

A primer on “pro-rata” rights
Institutional investors will always insist on pro-rata rights. This is not something to be concerned about. All it says is that the VC has the right (but not obligation) to invest his/her proportional ownership in the next round of financing. Typically this means, for example, if the investor owns 20% of your company from the A round they have the right to take 20% of the next financing (and continue provided that this right survives the next financing).

 

There is a lot of confusion about how pro-rata rights are implemented as evidenced by this post by Seth Levine of Foundry Group...