| HN Mirror

Broadly it means that the (in this case) seed investor gets to invest in following rounds at the same price as the other new investors, and the pro-rata means they have the right to maintain their ownership percentage as the rounds go on (if they choose to participate). The exact structure often varies from one deal to the next, you can structure that concept in numerous ways. The gist of it, though, is that the seed investor gains the right to participate in the next rounds at their discretion and typically at prices matched to whatever the next investor is getting in at (usually there is not a discount applied, although I've seen VCs reach for that), and also often with the ability to maintain their seed round ownership percentage.

Why does that exist? Primarily so the early investor doesn't get locked out of increasing and or maintaining their participation in a home run outcome. If the early bet turns out to be a great one, it enables them to maximize their potential return. Seed investors will often get diluted quite heavily over time, so that also enables them to offset or eliminate that consequence. They can continue to retain a sizable ownership stake, rather than passively watch as their 10% stake dwindles down to 1%; if they choose to, they could keep the 10% by maxing out their participation rights. Sometimes the structure dictates the pro-rata rights are only for one round, sometimes it applies perpetually. The details can all be negotiated.