An investor's contractual right to maintain their ownership percentage in future fundraising rounds by investing additional capital.
Pro rata rights (also called preemptive rights or participation rights) give an investor the right — but not the obligation — to invest in future funding rounds to maintain their ownership percentage. For example, if an investor owns 5% of your company after the seed round, pro rata rights let them invest in the Series A to stay at 5% rather than getting diluted.
These rights are valuable to investors because they allow them to "double down" on companies that are performing well. As information about a company's trajectory becomes clearer, the ability to invest more at a known company is a significant advantage over competing for allocation in a hot round.
From the founder's perspective, pro rata rights reduce flexibility when planning future rounds. If many early investors hold pro rata rights, a significant portion of the next round may be pre-allocated to existing investors, leaving less room for new investors. Managing pro rata rights carefully — who gets them, at what size, and whether they're transferable — is a detail worth paying attention to in early investment documents.