Pro-rata side letter to Investment agreement Generator for Australia

A Pro-rata side letter to Investment agreement gives existing investors the right to maintain their ownership percentage in future funding rounds. It's commonly used by Australian venture capital firms and angel investors to protect their stake when startups raise additional capital.

This agreement prevents investment dilution by letting current shareholders buy new shares at the same price and terms as new investors. Under Australian corporate law, these rights must be clearly documented and typically include specific triggers, like minimum investment thresholds and time limits. Many startup accelerators and early-stage investors consider pro-rata rights essential for building long-term investment portfolios.

Use a Pro-rata side letter to Investment agreement when investing in early-stage Australian companies, particularly if you anticipate multiple future funding rounds. This document becomes crucial for investors looking to maintain their ownership percentage and voting power as the company grows and seeks additional capital.

The timing is especially important for angel investors and venture capitalists making their initial investment. Getting pro-rata rights locked in early protects your interests when larger investors come on board. It's particularly valuable in high-growth startups where rapid scaling could quickly dilute your stake without these guaranteed participation rights in future rounds.

• Basic Pro-rata rights: The standard version grants investors the right to maintain their ownership percentage in future funding rounds at the same terms
• Full participation rights: Extends pro-rata rights to include the ability to purchase any unsubscribed shares from other investors who don't exercise their rights
• Qualified pro-rata: Links participation rights to specific conditions like minimum investment amounts or continued shareholding thresholds
• Time-limited rights: Sets expiry dates or sunset clauses on pro-rata rights, often tied to specific funding rounds or company milestones
• Super pro-rata: Gives investors the right to increase their percentage ownership in future rounds, common in seed-stage Australian startups

• Angel Investors: Early-stage investors who want to protect their ownership stake as startups grow and raise additional capital
• Venture Capital Firms: Professional investors who regularly use pro-rata rights to maintain strategic positions in their portfolio companies
• Corporate Lawyers: Draft and review the agreements to ensure enforceability under Australian securities law
• Startup Founders: Must understand and negotiate these rights as part of their capital raising strategy
• Company Secretaries: Manage compliance and record-keeping for pro-rata rights during funding rounds
• Investment Advisors: Help clients evaluate and negotiate pro-rata rights in investment deals

• Investment Details: Gather the initial investment amount, share price, and class of shares being purchased
• Ownership Structure: Document current cap table and anticipated future funding rounds
• Trigger Events: Define which financing rounds will activate pro-rata rights
• Participation Terms: Specify minimum investment thresholds and notice periods
• Time Limits: Set clear expiration dates or conditions for the pro-rata rights
• Compliance Check: Review ASIC regulations and corporate constitution requirements
• Signing Authority: Confirm proper authorization levels for all parties involved

• Parties: Full legal names and details of the investor and company, including ACN/ABN numbers
• Investment Terms: Reference to the original investment agreement and current shareholding
• Pro-rata Rights: Clear definition of participation rights and calculation method
• Notice Requirements: Specific timeframes for offering and accepting new shares
• Qualifying Rounds: Definition of which future funding rounds trigger these rights
• Transfer Provisions: Rules about assigning or transferring pro-rata rights
• Governing Law: Explicit reference to Australian jurisdiction and applicable state law
• Execution Block: Proper signing sections for authorized representatives

A Pro-rata side letter to Investment agreement differs significantly from a standard Investment Agreement. While both deal with investment terms, they serve distinct purposes in Australian business law.

• Scope and Purpose: Pro-rata side letters focus specifically on future participation rights, while Investment Agreements cover the entire investment relationship, including valuation, share class, and voting rights
• Timing of Use: Side letters are typically added to existing investment agreements when negotiating specific future rights, whereas Investment Agreements establish the initial investment terms
• Legal Structure: Pro-rata side letters are supplementary documents that modify or add to the main agreement, making them more flexible for future adjustments
• Enforcement Scope: Side letters only bind the specific investor and company named, while Investment Agreements often affect all shareholders and require broader corporate approval