Pro Rata Investment Calculator
Understanding Pro Rata Rights in Venture Capital
Pro rata rights (from the Latin "in proportion") generally refer to the right of an investor to participate in subsequent rounds of funding to maintain their percentage of ownership in a company. Without exercising these rights, an early investor's stake typically gets diluted as the company issues new shares to raise more capital.
This Pro Rata Investment Calculator helps angel investors, VCs, and founders determine exactly how much capital is required to "follow on" in a new round and what happens to ownership percentages if those rights are waived.
How Pro Rata Calculation Works
The calculation follows a logical sequence based on the company's capitalization table (cap table):
Investment Needed = Current Ownership % × Size of New Round ($)
However, to get the precise share counts, the math is broken down as follows:
- Current Ownership %: Your Shares / Total Fully Diluted Shares (Pre-Money).
- New Shares Issued: Total New Round ($) / Price Per Share.
- Pro Rata Allocation (Shares): Current Ownership % × New Shares Issued.
- Pro Rata Cost: Allocation Shares × Price Per Share.
Why Calculation Precision Matters
For early-stage investors, the difference between participating and not participating can be massive. If you own 1% of a company at the Seed stage and they go on to raise a Series A, Series B, and Series C, your 1% could easily shrink to 0.4% or less through dilution if you do not exercise your pro rata rights.
Example Scenario
Imagine you own 100,000 shares in a startup that has 10,000,000 fully diluted shares. This gives you exactly 1% ownership.
The company announces a Series A raise of $5,000,000 at a price of $2.00 per share. This means the company is issuing 2,500,000 new shares.
To keep your 1%, you need to buy 1% of the new shares.
1% of 2,500,000 = 25,000 shares.
At $2.00/share, your pro rata investment cost is $50,000.
If you pay the $50,000, you own 125,000 shares out of the new total (12,500,000), keeping your 1% intact. If you decline, you still own 100,000 shares, but out of 12,500,000, reducing your stake to 0.8%.