Rising Trend of Pro Rata Rights in VC Funding

Rising Trend of Pro Rata Rights in VC Funding

Ludmila Petrovich
2 min read

The Evolving Landscape of Pro Rata Rights in VC Funding

Lee Edwards of Root VC underscores the importance of pro rata rights for venture capitalists to maintain their ownership stakes during subsequent funding rounds, despite potential costs. Specialized funds, such as Alpha Partners, SignalRank, and SaaS Ventures, have emerged to assist seed VCs in exercising these rights. However, later-stage lead investors and founders' efforts to limit equity sold in each round complicate early investors' participation. Early investors often rely on the advocacy of founders, which depends on the value they provide, and sometimes opt out of exercising their pro rata rights due to high valuations or an inability to keep up with larger funds.

The pro rata rights landscape is evolving, with specialized funds gaining momentum to support early investors and founders. This trend is crucial as the number of later-stage deals decreases, emphasizing the significance of pro rata rights. The first quarter of 2024 saw a sharp decline in VC funding, highlighting the challenges faced by smaller funds. Experts like Steve Brotman advocate for doubling down on successful investments, while angel investor Jason Calacanis regrets not leveraging pro rata rights earlier, recognizing their potential for substantial returns. Overall, pro rata rights and strategic investments are becoming increasingly important in navigating later-stage funding complexities.

Key Takeaways

  • Pro rata rights allow VCs to maintain ownership in startups during later funding rounds.
  • Funds like SaaS Ventures help seed VCs exercise pro rata rights in later-stage deals.
  • High valuations and lead investor preferences often limit early-stage VCs from exercising pro rata rights.
  • SaaS Ventures raised $24 million to support pro rata investments, focusing on top-tier VC deals.
  • The pro rata market is growing due to fewer later-stage deals and increased demand for access to significant investments.


The emergence of pro rata-targeted funds reflects a strategic response to the challenges faced by early-stage VCs in preserving ownership stakes. The trend amplifies the critical role of these funds in supporting both VCs and founders, especially amidst declining VC funding, potentially ushering in short-term impacts such as enhanced investor retention and higher returns.

Did You Know?

  • Pro Rata Rights: These are contractual provisions that enable VCs to maintain their proportional ownership in a startup during subsequent funding rounds, safeguarding their initial investment from dilution.
  • Specialized Funds for Pro Rata Rights: Investment funds specifically created to assist early-stage VCs exercise their pro rata rights in later funding rounds, countering the dominance of later-stage lead investors.
  • Carried Interest in VC Funds: A share of the profits venture capitalists receive as compensation for managing investment funds, aligning their interests with those they support. Example: SaaS Ventures' 10% carried interest.

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