Pro-rata side letter to Investment agreement Template for Netherlands

A Pro-rata side letter to Investment agreement gives existing investors the right to maintain their ownership percentage in future funding rounds under Dutch corporate law. It protects investors from dilution by allowing them to buy new shares in proportion to their current stake when a company raises additional capital.

This agreement is particularly important in the Dutch startup ecosystem, where companies often go through multiple funding rounds. The letter typically specifies the investor's participation rights, notification requirements, and any conditions or limitations. Without it, an investor's ownership percentage could shrink significantly as new investors come on board.

Use a Pro-rata side letter to Investment agreement when preparing for your first significant investment round in a Dutch company, especially if you expect multiple funding rounds in the future. Early-stage investors commonly request these letters to protect their investment as the company grows and seeks additional capital.

This document becomes crucial before signing your main investment agreement, particularly when dealing with venture capital firms or professional investors in the Netherlands. It helps avoid future disputes about participation rights and prevents complicated negotiations during follow-on rounds. Many Dutch scale-ups include these letters during their Series A funding to maintain good relationships with early backers.

• Full Pro-rata Rights: Grants investors the right to participate in all future funding rounds, maintaining their exact ownership percentage without limitations
• Qualified Pro-rata Rights: Includes specific conditions or caps, like minimum investment thresholds or expiration after certain funding rounds
• Major Investor Pro-rata: Only applies to investors meeting defined investment thresholds under Dutch law, typically holding 5% or more
• Time-Limited Pro-rata: Rights expire after specific events or timeframes, common in Dutch startup financing
• Staged Pro-rata: Rights vary based on the type of funding round or company valuation milestones

• Venture Capital Firms: Primary requesters of pro-rata rights, using these letters to protect their investment position in Dutch startups
• Angel Investors: Early-stage investors who seek to maintain their ownership percentage through future funding rounds
• Corporate Legal Teams: Draft and review the side letters to ensure compliance with Dutch corporate law
• Startup Founders: Must understand and negotiate these rights as part of their fundraising strategy
• Investment Managers: Oversee the implementation and tracking of pro-rata rights across multiple portfolio companies
• Company Board Members: Review and approve these agreements as part of their governance duties

• Investment Details: Collect current ownership percentages, investment amounts, and share class information
• Participation Rights: Define exact conditions for pro-rata participation and any minimum investment thresholds
• Company Information: Gather current capitalization table and Dutch Chamber of Commerce registration details
• Timing Parameters: Specify notice periods for new funding rounds and response deadlines
• Exclusions: List any specific funding rounds or situations where pro-rata rights won't apply
• Termination Triggers: Outline conditions when these rights expire or become invalid
• Signature Authority: Confirm who has proper authorization to sign under Dutch corporate law

• Parties and Definitions: Full legal names of investor and company, plus clear definitions of key terms
• Pro-rata Rights Scope: Detailed description of participation rights and calculation method
• Notice Requirements: Specific timeframes for informing investors about new funding rounds
• Exercise Mechanics: Clear process for exercising pro-rata rights and payment terms
• Transfer Provisions: Rules about transferring these rights to affiliated entities
• Duration Clause: Specific term length and any termination conditions
• Governing Law: Express choice of Dutch law and jurisdiction
• Signature Block: Proper execution format under Dutch corporate requirements

A Pro-rata side letter to Investment agreement differs significantly from a standard Investment Agreement in both scope and purpose. While both documents deal with investment terms, they serve distinct functions in Dutch corporate finance.

• Scope and Focus: Pro-rata side letters specifically address future investment rights, while Investment Agreements cover the entire investment relationship including valuation, share class, and voting rights
• Timing of Use: Pro-rata side letters are typically added as supplements to existing agreements, focusing on future rounds, while Investment Agreements establish the initial investment terms
• Legal Complexity: Pro-rata side letters are typically shorter and more focused, dealing with just one specific right, whereas Investment Agreements are comprehensive documents covering multiple aspects of the investment relationship
• Parties Involved: Pro-rata rights often apply to specific investors only, while Investment Agreements bind all participating investors in a round