Super Pro Rata Rights
A contractual right allowing an investor to purchase more than its current ownership percentage in a future financing round, beyond a standard pro-rata right.
Definition
Super pro rata rights (sometimes called over-allotment or preferential rights) allow an investor to participate in future financing rounds by purchasing more shares than a standard pro-rata right would allow, letting the investor increase its ownership percentage over time rather than merely maintain it. A standard pro-rata right lets an investor buy enough new shares in a subsequent round to keep its existing ownership percentage from being diluted; a super pro-rata right specifies a multiple (for example, 1.5x or 2x its current ownership) or a fixed target percentage the investor may purchase up to, subject to the round's overall size and other investors' rights.What this means in practice
In MedTech, where a company may raise a modest seed round before pivotal data exist and then a much larger Series A or B once clinical or regulatory milestones de-risk the story, an early investor with conviction often negotiates super pro-rata rights to concentrate more capital into the company at the moment its risk profile most improves, rather than being capped at maintaining its original, smaller percentage.Examples
- A seed investor owns 8 percent of the company after investing $1,000,000 in a $12,500,000 post-money round. A standard pro-rata right lets that investor invest enough in the Series A to keep 8 percent ownership. A 2x super pro-rata right lets the investor instead invest enough to reach up to 16 percent ownership in the Series A, subject to the round's total size and allocation to new investors.
- If the Series A is sized at $20,000,000 and the investor's 2x super pro-rata right entitles it to up to 16 percent of that round, the investor could invest up to $3,200,000 (16 percent of $20,000,000), compared with roughly $1,600,000 under a standard pro-rata right sized to maintain its original 8 percent.
- •Assuming super pro-rata rights are automatically honored regardless of round size; term sheets typically cap the right by the round's total allocation and may be subordinated to new lead investors' allocation needs.
- •Failing to disclose an existing super pro-rata right to a new lead investor early in negotiations, which can create friction over final round allocation late in the process.
- •Confusing super pro-rata rights with a right of first refusal on secondary sales; they govern participation in new primary issuances, not the purchase of existing stockholders' shares.
Frequently asked questions
Related terms
Grouped by themeEditor's picks
· Hand-selected related conceptsLedger of all securities issued by a company and who owns them.
Reduction in existing shareholder ownership when new shares are issued.
Sequential priced equity rounds in venture-backed companies, typically progressing from product-market validation (A) to scale (B) to growth (C+).
Non-binding outline of the key economic and control terms of an investment.
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· Same categoryAn independent fair-market-value appraisal of common stock used to set tax-compliant strike prices for employee stock options.
Adjustment that protects investors if the company raises a future round at a lower price.
The governing body elected by stockholders that oversees management, approves major corporate actions, and typically includes investor-designated seats after venture financing.
Interim financing between priced rounds, usually convertible.
Where this term appears across MedTech Terms.
Sources
3 sourcesEvery citation below opens the original document. Each is graded against our source-tier hierarchy so you can see what rests on binding law versus commentary.
- 1SEC Investor.gov: Venture CapitalTier 2 UncheckedSEC Investor.govinvestor.gov
- 2NVCA Model Investors' Rights AgreementTier 4 VerifiedNVCAnvca.org
- 3Silicon Valley Bank - Healthcare ReportsTier 4 VerifiedSVBsvb.com
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