Article · 12 min read

Pro Rata Rights: A Founder's Guide to Term Sheets

CRV Free Intermediate

This is the piece that names the exact failure mode in your question: when your early investors all take their pro-rata, they fill most of a Series B and leave room for only five to ten percent for a new lead, right when a growth lead wants fifteen to twenty. It then gives you the fix in plain terms, cap the right to investors holding one to two percent or more, grant full rights to your lead, and use sunset or pay-to-play mechanics so a long tail of tiny cheques never clogs the round.

• Pro-rata lets an existing backer keep their percentage by buying into your next round, and for a serious lead it is completely standard
• The danger is aggregate: many small holders each taking pro-rata can consume the allocation your Series A or B lead needs
• Scope it with a major-investor threshold (roughly 1 to 2 percent ownership) plus sunset and pay-to-play clauses so the right stays with your real believers