Pro-rata right

A pro-rata right lets an existing investor participate in a future financing round specifically to hold their ownership percentage steady, instead of being diluted down along with everyone else who doesn't participate. It's a right, not an obligation — the investor can choose not to exercise it and simply accept the dilution.

The mechanics

Absent an option-pool top-up, a new round dilutes every existing holder by the same proportion — the round's new shares as a fraction of the post-round total. An investor who wants to stay flat needs to buy exactly that same fraction of the new round's shares that they held of the company going in. That's the entire rule: buy your pre-round ownership percentage of the new round.

Why it's contractual, not automatic

Pro-rata rights are typically granted in a side letter or in the investment documents themselves (major-investor provisions), and usually apply only above some check-size threshold. Without an explicit right, an investor has no claim on new-round allocation — the company (and often existing preferred, via a right of first refusal) controls who gets to buy in.

Why founders care

Pro-rata rights use up allocation in the new round that could otherwise go to a new lead or to other investors, and heavy pro-rata participation from many small early checks can materially shrink the room left for the round's actual new money. Founders often negotiate 'major investor' thresholds specifically to keep pro-rata rights limited to a handful of meaningful check sizes.