Pro Rata Side Letter (Canada) by Y Combinator
The Pro Rata Agreement gives investors the right to purchase their proportional share of preferred stock in a company’s future equity financing, ensuring they can maintain ownership when a post-money SAFE converts. It defines how the pro rata share is calculated, when the right terminates, and the rules for assignment or amendment. This agreement is part of the standard financing documents commonly used alongside Y Combinator’s post-money SAFE framework.
[company name]
PRO RATA AGREEMENT
This agreement (this “Agreement”) is entered into on or about [effective date] in connection with the purchase by [investor name] (the “Investor”) of that certain simple agreement for future equity with a “Post-Money Valuation Cap” (the “Investor’s Safe”) issued by [company name] (the “Company”) on or about the date of this Agreement. As a material inducement to the Investor’s investment, the Company agrees to the provisions set forth in this Agreement. Capitalized terms used herein shall have the meanings set forth in the Investor’s Safe.
The Investor shall have the right to purchase its pro rata share of Standard Preferred Shares being sold in the Equity Financing (the “Pro Rata Right”). Pro rata share for purposes of this Pro Rata Right is the ratio of (x) the number of Capital Shares issued from the conversion of all of the Investor’s Safes with a “Post-Money Valuation Cap” to (y) the Company Capitalization. The Pro Rata Right described above shall automatically terminate upon the earlier of (i) the initial closing of the Equity Financing; (ii) immediately prior to the closing of a Liquidity Event; or (iii) immediately prior to the Dissolution Event.
Neither this Agreement nor the rights contained herein may be assigned, by operation of law or otherwise, by Investor without the prior written consent of the Company; provided, however, that this Agreement and/or the rights contained herein may be assigned without the Company’s consent by the Investor to any other entity who directly or indirectly, controls, is controlled by or is under common control with the Investor, including, without limitation, any general partner, managing member, officer or director of the Investor, or any venture capital fund now or hereafter existing which is controlled by one or more general partners or managing members of, or shares the same management company with, the Investor.
Any provision of this Agreement may be amended, waived or modified upon the written consent of the Company and either (i) the holders of a majority of Capital Shares issued from all Safes converted in connection with the Equity Financing held by the Investor and other Safe holders with Pro Rata Rights pursuant to agreements on the same form as this Agreement, provided that such amendment, waiver or modification treats all such holders in the same manner, or (ii) the Investor. The Company will promptly notify the Investor of any amendment, waiver or modification that the Investor did not consent to. The choice of law governing any dispute or claim arising out of or in connection with this Agreement and the submission to jurisdiction of the parties hereunder shall be consistent with that set forth in the Investor’s Safe.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed and delivered.
[company name]
By:
[company authorized signatory name]
[company authorized signatory title]
[investor name]
By:
[investor authorized signatory name]
[investor authorized signatory title]
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Canada note
This version is drafted for Canada. Provinces differ on employment standards and Quebec applies civil law rather than common law. Tell GitLaw which province applies and it adjusts the draft.
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