Pro-rata side letter to Investment agreement Template for United States

A Pro-rata side letter to Investment agreement gives existing investors the right to maintain their ownership percentage in future funding rounds. In the Philippines, startups and growing companies commonly use these letters to protect early investors from dilution when new investors come aboard.

The letter typically works alongside the main investment agreement and spells out specific conditions under which investors can purchase additional shares. Under Philippine corporation laws, this right helps balance the interests of early supporters while allowing companies to raise new capital. Most local venture capital firms and angel investors expect these rights as part of their standard investment terms.

Use a Pro-rata side letter to Investment agreement when bringing in new investors to your Philippine startup or company while protecting your early backers' interests. This document becomes essential during Series A rounds or follow-on funding, where original investors want to maintain their ownership percentage.

The timing is crucial - draft this letter before finalizing new investment terms. Philippine corporations often need these letters when scaling up operations or expanding into new markets. Early investors particularly value this protection during rapid growth phases when multiple funding rounds happen close together, helping them preserve their voting power and economic rights.

• Standard Pro-rata Right: Basic side letter granting existing investors the right to maintain ownership percentage in future rounds
• Qualified Pro-rata: Limits participation rights based on minimum investment thresholds or investor qualifications under Philippine securities laws
• Time-Limited Pro-rata: Sets specific expiration dates or funding round limits for the pro-rata rights
• Conditional Pro-rata: Ties participation rights to performance metrics or company milestones
• Industry-Specific Pro-rata: Tailored versions for tech startups, real estate ventures, or manufacturing companies with sector-specific terms

• Early-Stage Investors: Original backers who want to protect their ownership stake when new funding rounds occur
• Company Founders: Responsible for negotiating and approving pro-rata rights while balancing future fundraising flexibility
• Corporate Lawyers: Draft and review the side letters to ensure compliance with Philippine securities regulations
• Venture Capital Firms: Often require pro-rata rights as standard terms in their investment agreements
• Board Members: Must approve and oversee the implementation of pro-rata rights in subsequent funding rounds

• Investment Details: Compile current ownership percentages, share classes, and valuation figures
• Participation Terms: Define specific conditions when pro-rata rights activate and any investment thresholds
• Time Limits: Establish duration of pro-rata rights and applicable funding rounds under Philippine law
• Notice Requirements: Specify how and when investors must be notified of new funding opportunities
• Exercise Mechanics: Detail the process for investors to exercise their pro-rata rights, including payment terms
• Documentation Review: Cross-reference with existing investment agreements to ensure consistency

• Identification Section: Names, addresses, and registration details of company and investors
• Pro-rata Rights Definition: Clear explanation of participation rights and calculation method
• Qualifying Rounds: Specific types of future financing where rights apply
• Notice Provisions: Timing and method for informing investors of new rounds
• Exercise Procedure: Steps and deadlines for exercising pro-rata rights
• Integration Clause: Reference to main investment agreement and other relevant documents
• Governing Law: Explicit statement of Philippine law application
• Signature Block: Authorized signatories with proper attestation

A Pro-rata side letter to Investment agreement is often confused with a standard Investment Agreement, but they serve distinct purposes in Philippine business law. While both deal with investment terms, their scope and application differ significantly.

• Scope and Purpose: Investment Agreements cover the entire investment relationship, while pro-rata side letters focus specifically on future participation rights
• Timing of Effect: Investment Agreements take effect immediately upon signing, whereas pro-rata rights activate only during future funding rounds
• Document Hierarchy: Pro-rata side letters supplement the main Investment Agreement, acting as an addendum rather than a standalone contract
• Negotiation Flexibility: Pro-rata side letters can be modified or terminated without affecting the main Investment Agreement terms
• Legal Requirements: Investment Agreements need more extensive due diligence under Philippine securities laws, while side letters focus on specific participation mechanics