What are pro-rata rights?
By SuLe · Updated 4 July 2026
A pro-rata right is an investor's right — not obligation — to invest in your future funding rounds to keep their percentage ownership. When you issue new shares, a pro-rata investor can buy enough of them to avoid being diluted below their current stake. They still pay the new round's price; it is a right to keep pace, not free equity.
Key facts
- A pro-rata right lets an investor put money into future rounds to maintain their percentage — it is a right, not an obligation.
- The investor pays the new round's price for their pro-rata shares; nothing is handed over for free.
- Pro-rata rights overlap with statutory and contractual pre-emption on new share issues.
- Broad pro-rata rights across many holders can crowd out room for a new lead investor.
- They are common and usually reasonable for a lead investor at seed and Series A.
What does a pro-rata right let an investor do?
A pro-rata right lets an existing investor take up their share of a future issue of new shares, so their percentage does not fall when you raise again. If they own 20% and you issue new shares, they can buy 20% of that issue.
It is entirely optional. The investor can exercise the right, partly exercise it, or let it lapse — there is no obligation to put more money in.
And it is not a discount or a giveaway. They pay the price set for the new round like any other participant. The right simply guarantees them the opportunity to maintain their stake.
How is this different from pre-emption rights?
The two heavily overlap. Statutory pre-emption under the Companies Act 2006 already gives existing shareholders a right of first refusal on many new share issues, unless it is disapplied. A contractual pro-rata right is essentially a negotiated, tailored version of the same idea.
Pre-emption is often disapplied at a funding round so the round can be structured cleanly, and a pro-rata right is then written back in for the investors who negotiated for it. The mechanics of statutory pre-emption sit in the closing-the-round cluster.
In short: pre-emption is the default legal backstop; a pro-rata right is the bespoke contractual promise an investor secures on top.
Should I give pro-rata rights, and to whom?
For a lead investor, pro-rata rights are common and usually reasonable — they let a supportive backer keep backing you. The question is how widely you grant them.
If every small angel has full pro-rata rights, they can collectively take up much of your next round, leaving little room for the new lead investor you actually need. That can make the next raise harder to structure.
Common approaches are to grant pro-rata rights only to major investors, to cap them, or to make them subject to the board's ability to prioritise a new lead. UK venture terms commonly follow the BVCA model documents, which treat pro-rata (or "pre-emption on new issues") as a standard but negotiable term.
| Pro-rata right | No pro-rata right | |
|---|---|---|
| Investor can maintain % | Yes, by paying in | Only via general pre-emption, if any |
| Pays new round price? | Yes | — |
| Obligation to invest? | No | No |
| Risk to founders | Can crowd out a new lead | Investor dilutes naturally |
| Common for | Lead investors | Small holders (often excluded) |
Worked example
Dario's proptech startup has 1,000,000 shares, of which an early fund owns 200,000 — a 20% stake with a pro-rata right. Dario raises a new round by issuing 250,000 new shares to a Series A lead.
Without exercising its right, the fund's 200,000 shares would fall to 200,000 of 1,250,000 — 16%. With its pro-rata right, the fund elects to buy 20% of the new issue: 50,000 shares, at the new round's price.
That takes the fund to 250,000 shares of 1,250,000 — back to exactly 20%. It paid the round price for the extra 50,000; the right guaranteed it the chance to keep its stake, not a cheaper entry.
Where founders go wrong
Granting pro-rata rights to everyone
— broad rights across many small holders can swallow your next round and squeeze out a new lead.Confusing it with free equity
— the investor pays the new round price; the right is about opportunity, not price.Ignoring the pre-emption interaction
— statutory pre-emption may already apply unless disapplied, so align the contractual and statutory positions.Not capping or prioritising
— build in the ability to make room for a new lead, or your Series A structuring gets awkward.
Related questions
What is a pro-rata right?
It is an investor's right — not obligation — to invest in your future funding rounds to maintain their percentage ownership. When you issue new shares, a pro-rata investor can buy enough of them to avoid being diluted below their current stake. They still pay the new round's price.
Are pro-rata rights the same as pre-emption rights?
They overlap. Pre-emption is the statutory and contractual right of first refusal on new shares; a contractual pro-rata right is essentially a negotiated version aimed at letting an investor hold their percentage. UK companies also have statutory pre-emption under the Companies Act 2006 unless disapplied. [More: What are pre-emption rights — and how are they disapplied?]
Should I give an investor pro-rata rights?
They are common and usually reasonable for a lead investor. The main thing to watch is that broad pro-rata rights across many holders can crowd out room for a new lead in the next round. Some founders limit them to major investors or make them subject to board discretion.
Do pro-rata rights cost the founders money?
Not directly — the investor pays the new round's price for their shares. But by taking up space in the round, heavy pro-rata rights can reduce how much a new lead investor can buy, which can complicate your next raise. It is a structural cost, not a cash one.
Pro-rata rights look harmless — an investor simply keeping their stake — but granted too widely they can tie up your next round before a new lead gets a look in. A SuLe solicitor can scope who gets them and build in room for future leads. Book a free term sheet review before you agree the terms.
Keep reading: What are pre-emption rights — and how are they disapplied? · What is anti-dilution protection and how does it work? · What are information rights? · Pre-money vs post-money valuation — what's the difference? · What founder protections should I negotiate in a term sheet? · How is a Series A different from a seed round legally?
Primary sources: BVCA — model documents for UK venture capital · Companies Act 2006
