Pro rata rights let an existing investor buy part of a company's next round so its ownership does not shrink. In the NVCA model Investors' Rights Agreement, a "Major Investor" may buy the share of new securities equal to its common stock (counting preferred as converted and its options or warrants) divided by all common stock outstanding on the same basis. In practice that is roughly the investor's ownership times the new shares sold. It is a right, not an obligation, and it does not cover option pool top-ups.
This guide covers the venture term, not the general meaning of "pro rata." It walks through the contract language, which shares count, who qualifies, super pro rata, SAFEs, and a worked Series A that shows the "pro rata squeeze" on the new lead.
This is not legal advice. The model documents quoted below are starting points that lawyers edit for each deal. Your signed documents control, so read them, and check allocations with your counsel before you promise anyone a number.
Where the right comes from
In a priced round in the US, the pro rata right usually sits in the Investors' Rights Agreement. The NVCA (National Venture Capital Association) publishes the model version most law firms start from. The current one is the NVCA Model Investors' Rights Agreement, updated October 2025. Section 4.1 is titled "Right of First Offer." It says that "if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Major Investor."
The mechanics in that section:
- Notice. The company sends an "Offer Notice" stating its intention to offer, the number of New Securities, and the price and terms.
- 20 days to elect. Each Major Investor has 20 days after the notice to say how much of its share it will buy, at the same price and terms.
- Oversubscription. Investors who take their full share ("Fully Exercising Investors") get a further ten days to buy the part other Major Investors declined, split by their relative holdings.
- Sale to outsiders. Whatever is still left can be sold to anyone within a bracketed 90 to 120 day window, at a price not lower and on terms no better than in the notice. If that window passes, the right revives.
"New Securities" is broad, but the right does not apply to "Exempted Securities" as defined in the charter, or to IPO shares. The NVCA model certificate of incorporation (October 2025) lists Exempted Securities that include common stock or options "issued to employees or directors of, or consultants or advisors to" the company under an approved plan, plus stock splits, conversions and a few bracketed categories. So employee option grants and pool increases do not trigger pro rata. The right applies to the preferred stock sold in a financing.
This is separate from the NVCA Right of First Refusal and Co-Sale Agreement, which covers existing holders selling their own shares. Our term sheet guide shows where each right sits.
How the pro rata allocation is calculated
The NVCA formula, from Section 4.1(b), gives each Major Investor the portion of the New Securities equal to the proportion that:
- (x) "the Common Stock then held by such Major Investor (including all shares of Common Stock then issuable ... upon conversion and/or exercise ... of the Preferred Stock and any other Derivative Securities then held by such Major Investor)" bears to
- (y) "the total Common Stock of the Company then outstanding (assuming full conversion and/or exercise ... of all Preferred Stock and any other Derivative Securities then outstanding)."
"Derivative Securities" are defined as securities convertible into or exercisable for common stock, "including options and warrants." Read together, the denominator counts issued shares, preferred as converted, and outstanding options and warrants. It does not mention reserved shares that have not been granted. So on the plain words, the unissued part of the option pool is out of the denominator. That makes the NVCA basis a little narrower than the "fully diluted" figure on most cap tables, which usually includes the whole pool. The investor's percentage on the NVCA basis is therefore a little higher than its fully diluted percentage.
Two short formulas cover most cases:
- Pro rata shares = (investor's as-converted shares ÷ total as-converted shares outstanding) × new shares offered
- Pro rata dollars = pro rata shares × price per share, which is close to ownership % × round size
The NVCA footnote calls this "the most common formulation" and offers an alternative denominator: only the shares held by all Major Investors. With that version, Major Investors together could take 100% of the new round. Watch for it in drafts.
One more practical line from the same footnote: "In practice, the New Securities are often allocated by negotiation, with the specific pro rata right set forth here being waived." The right gives the investor a strong negotiating position in the next round. The final allocation is usually agreed between the company, the new lead and existing investors.
Major investor thresholds
The NVCA model does not give pro rata to every investor. It gives it to "Major Investors," defined as any investor that, with its affiliates, holds at least "[______] shares of Registrable Securities." The number is left blank. It is negotiated deal by deal and is often set as a share count that matches a minimum check.
The YC SAFE User Guide describes the same idea for SAFE rounds: "Require a Minimum Investment Amount ... This is a common approach in priced rounds." In its example of a $1 million raise, the company "could give pro rata rights only to the investors who invested $250k," not to the 25 people who put in $10,000 each.
The NVCA model also has an optional "use it or lose it" clause that ends a Major Investor's right if it "fails to purchase ... all of such Major Investor's pro rata amount" in a round.
Pro rata can also be waived for a round by the required holders under Section 6.6. The NVCA footnote warns this "could result in some investors losing pro rata rights in a round where other investors are participating."
Super pro rata
Super pro rata is a right to buy more than your current share of a future round, so ownership goes up rather than just holding steady. CRV's guide to pro rata rights (February 2026) describes these as rights that "allow investors to actually increase their ownership stake in subsequent rounds" and advises founders to be careful with them. It is not part of the standard NVCA formula. It is a negotiated add-on.
The cost is simple. Every share reserved for an earlier investor's super pro rata is a share the new lead cannot buy, unless the round grows and founders take more dilution. The worked example below shows that even plain pro rata uses up a lot of room.
How SAFEs handle pro rata
The YC post-money SAFE has no pro rata right built in. YC's documents page says the right "lives in an optional, standardized side letter rather than in the SAFE itself." The Pro Rata Side Letter grants exactly this:
- "The Investor shall have the right to purchase its pro rata share of Standard Preferred Stock being sold in the Equity Financing."
- Pro rata share is the ratio of "(x) the number of shares of Capital Stock issued from the conversion of all of the Investor's Safes with a 'Post-Money Valuation Cap' to (y) the Company Capitalization."
- The right "shall automatically terminate upon the earlier of (i) the initial closing of the Equity Financing; (ii) immediately prior to the closing of a Liquidity Event; or (iii) immediately prior to the Dissolution Event."
So the side letter is a one-round right: it covers the priced round in which the SAFE converts, then ends. Pro rata in later rounds has to come from the new round's Investors' Rights Agreement. "Standard Preferred Stock" is the series sold to new-money investors at the initial closing. "Company Capitalization" in the SAFE is measured immediately before the financing on an as-converted basis and includes outstanding shares, converting securities, and issued and promised options.
YC moved the right here because the original pre-money SAFE's version applied to the round after conversion, and people often misread it. The side letter "can only be used with forms of the safe that have a Post-Money Valuation Cap," because the investor's percentage comes from the cap. The guide gives an example: $750,000 at a $5 million post-money cap is 15% as converted, so the holder can buy 15% of the round.
The guide has a direct note to founders: "you will have to make room for your new investors, your existing investors with pro rata rights, and perhaps your existing investors who don't have formal pro rata rights." And to investors with the right: "be responsive and commit or pass quickly." Our SAFE vs convertible note guide covers the other conversion terms.
What happens when holders do not take their allocation
Under the NVCA model, declined shares go first to Fully Exercising Investors in proportion to their holdings, then to outside buyers within the 90 to 120 day window at no better price or terms. The YC side letter has no oversubscription step: a SAFE holder's unused share goes back into the round for the company and lead to place. Either way, an investor that passes is diluted like any other holder.
The pro rata squeeze
The squeeze happens when the new lead wants a fixed percentage, say 20%, and existing investors want their pro rata in the same round. There are only three ways out:
- The lead takes less. Pro rata comes out of the lead's allocation. Founders are unaffected, but the lead may walk away.
- The round gets bigger. The lead keeps its check and pro rata is added on top. Founders take the extra dilution.
- Existing investors take less. They agree to a cut-back or waive. This is where the NVCA footnote's "allocated by negotiation" comes in.
YC's User Guide gives a formula for the dilution from SAFE pro rata when the lead's share is fixed: SAFE pro rata allocation % = new investors % ÷ (100% − SAFEs with pro rata %) − new investors %. In its example, 25% for new investors and 15% of SAFEs with pro rata gives 25% ÷ 85% − 25% = 4.41% extra.
Worked example: a seed fund at the Series A
Illustrative numbers, not market data. A SaaS company raised a priced seed. Its fully diluted cap table before the Series A has 10,000,000 shares:
| Holder | Shares | Fully diluted % |
|---|---|---|
| Founders | 7,000,000 | 70.0% |
| Seed Fund A (Major Investor) | 1,000,000 | 10.0% |
| Seed Fund B (Major Investor) | 1,000,000 | 10.0% |
| Granted options | 600,000 | 6.0% |
| Unissued pool | 400,000 | 4.0% |
The Series A term sheet: $8 million at a $32 million pre-money valuation, with the unissued pool topped up to 10% of the post-money cap table, counted in the pre-money (the usual "option pool shuffle"). Solving for the post-round share count:
- Post-money fully diluted shares: 13,714,286
- Pool top-up: 971,429 new reserved shares
- Pre-money shares: 10,971,429, so price per share = $32,000,000 ÷ 10,971,429 = $2.9167
- New Series A shares: $8,000,000 ÷ $2.9167 = 2,742,857 (20% of the post-money)
Fund A's choices
On the NVCA basis, Fund A's percentage leaves out the 400,000 unissued shares: 1,000,000 ÷ 9,600,000 = 10.42%, not 10%.
| Fund A does this | Shares bought | Cost | Fully diluted after |
|---|---|---|---|
| Does not participate | 0 | $0 | 7.29% |
| Rule of thumb: 10% × $8M | 274,286 | $800,000 | 9.29% |
| Full NVCA pro rata (10.42% of new shares) | 285,714 | $833,333 | 9.38% |
| Hold 10% fully diluted | 371,429 | $1,083,333 | 10.00% |
Full pro rata keeps Fund A at exactly 10.42% of outstanding shares, which is what the contract protects. It does not hold 10% fully diluted, because the pool top-up is an Exempted Security. To get back to 10% fully diluted, Fund A would need 13.5% of the Series A, which is super pro rata. Run your own version in the dilution calculator or the cap table calculator.
The effect on the lead and the founders
Now say both seed funds take full pro rata.
| Scenario | Round size | Lead ownership | Founders after |
|---|---|---|---|
| No seed fund participates | $8.0M | 20.0% | 51.04% |
| Both take pro rata inside an $8M round (lead squeezed) | $8.0M | 15.8% ($6.33M) | 51.04% |
| Both take pro rata on top, lead keeps $8M | $10.1M | 19.0% | 48.13% |
Inside a fixed $8 million round, the two seed funds take $1,666,667, and the lead's check drops to $6,333,333. Founders stay at 51.04%, but a lead that needed 20% may not accept 15.8%.
If the round expands so the lead keeps its full $8 million, each seed fund's pro rata grows to $1,052,632 (10.42% of a bigger round). The round reaches $10.1 million. Because the pool top-up is 10% of a larger post-money and still sits in the pre-money, the price per share falls slightly to $2.8947. Founders end at 48.13%, 2.92 points lower than when nobody exercised. The lead ends at 19.0%, not 20%, since the pro rata money adds to the post-money too.
Settle round size and pro rata together. The how much to raise calculator helps size the round from runway first, and the SaaS fundraising guide covers the sequence of a raise. A down round adds another layer; the anti-dilution calculator shows how preferred conversion prices adjust.
What founders should check before signing
- The denominator: all outstanding as-converted stock (NVCA default) or only Major Investors' stock?
- The threshold: does the Major Investor share count match the checks you want to reward?
- Use it or lose it and waiver: is the clause in, and who can waive pro rata for a round?
- Super pro rata and SAFE side letters: add them all up. Together they set how much of your next round is already spoken for.
For how these terms appear on a real document, see our annotated term sheet example.
Frequently asked questions
How are pro rata rights calculated?
Divide the investor's as-converted shares by the company's total as-converted shares outstanding, then multiply by the number of new shares in the round. Under the NVCA model the denominator includes outstanding options and warrants but not the ungranted pool. For dollars, multiply the shares by the round price. It comes out close to ownership % × round size.
Are pro rata rights calculated on a fully diluted basis?
Not exactly, in the NVCA model. It counts all outstanding stock as converted plus outstanding options and warrants, and leaves out reserved shares not yet granted. The YC side letter uses "Company Capitalization," which includes outstanding shares, converting securities, and issued and promised options. Always read the definition in your own documents.
Do angel investors get pro rata rights?
Only if they negotiate them. In priced rounds the right usually goes to Major Investors above a share threshold. With YC SAFEs it comes only with the optional side letter, and YC's guide suggests a minimum check as one principled way to decide who gets one.
Does the YC SAFE include pro rata rights?
No. The post-money SAFE has none. YC publishes a separate optional Pro Rata Side Letter that gives the holder its pro rata share of the Standard Preferred Stock in the round where the SAFE converts, and it ends at that round's initial closing.
Is an investor required to use its pro rata right?
No. It is a right, not an obligation. If the agreement has a use-it-or-lose-it clause, though, not taking the full amount can end the right for future rounds.
Model it before the term sheet arrives
Pro rata changes how big the round really is, and that feeds straight into runway and your hiring plan. In Adlega you can build a driver-based 36-month SaaS model with MRR, churn, CAC, burn and runway, and run scenarios on round size and timing. The AI CFO can walk you through how each number is calculated. Do the cap table math in the calculators above, then check that the cash plan still works.