Pro-rata rights

Pro-rata rights allow existing investors to purchase shares to maintain their current ownership percentage in a company during subsequent rounds of financing. These rights provide investors with access to greater upside if a company does well without large upfront commitments. But, they come at the expense of founders.

New investors will be sure not to get diluted when they purchase their shares. So, for investors exercising their pro-rata rights to maintain their current ownership percentage, founders are left to bear the consequence.

If founders have previously agreed to these terms, they'll likely ask future investors to play "bad cop" to get them voided before agreeing to invest. After all, the only rule in venture capitals is: "he who has the gold makes the rules."

For more details on pro-rata rights, check out these articles by Fred Wilson and Mark Suster.