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Pro rata rights explained shorts
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What are pro rata rights? Pro rata rights explained in under 1 min. • 🎥 Full episode: https://efficient.link/ateam/6 • Pro rata rights are privileges granted to existing investors, allowing them to retain their initial ownership percentage by participating in future financing rounds, thus maintaining their stake in the company. • Pro rata rights are rights that entitle existing investors to keep their initial ownership percentage in subsequent rounds of financing. For example: say an investor owns a 5% equity stake in your company before a new round of funding. • A pro rata right entitles that investor to a 5% stake of the new shares issued in that funding round. Pro rata rights typically apply in the subsequent round of funding after they’re granted (they may also apply in later rounds, though not always). This gives an early investor the option to continually invest in a company as the company’s valuation grows. • Otherwise, the investor’s initial investment would continue to shrink as a percentage of the overall equity ownership in the company. Pro rata rights are a big deal in the world of venture capital, as they can mean the difference between a pretty nice and gargantuan return on investment. But it’s also important to remember that investors with pro rata rights are not obligated to use them. They only need to invest in later rounds if they have an interest in maintaining their proportional share of equity, versus seeing it diluted. • Source: https://pulley.com/guides/pro-rata-ri.... • 🎥 Full episode: https://efficient.link/ateam/6
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