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What they mean
If an investor invests and gets 20% of your company in a seed round, a pro-rata says they can invest the amount at the series-a that would enable them to retain that ownership percentage. So if your series-A would dilute them 25%, if they didn’t invest they would be down to 15%. If they take their pro-rata option (it’s a choice) then they get to invest so they add that 5% back. The math is a little iterative so ‘who gets what’ involves a little negotiation. They’re done for you in the pro cap table.
This can be a good or bad question to be asked. If your investors have pro-rata, then the next question is ‘are they doing their pro-rata?‘
It is a bad question if your investors have pro-rata rights and are not using them.
They are starting to think how can they block the investors from getting the pro rata… Yes, this happens (And quite often to a fund you have heard of).
What you need to say
“Yes, we have agreed to pretty standard terms. However, if you are looking to do the whole round yourself, I’m pretty sure some of our investors would be happy to take money off the table since we have grown quite considerably, and on paper, they have already multiplied their investment. I can, of course, introduce you to them to have those discussions.”
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