{"id":9925,"date":"2022-03-16T10:34:22","date_gmt":"2022-03-16T02:34:22","guid":{"rendered":"https:\/\/zegal.com\/safe-pro-rata-rights-agreement\/"},"modified":"2024-08-20T15:18:08","modified_gmt":"2024-08-20T07:18:08","slug":"safe-pro-rata-rights-agreement","status":"publish","type":"page","link":"https:\/\/zegal.com\/en-sg\/safe-pro-rata-rights-agreement\/","title":{"rendered":"SAFE Pro Rata Rights Agreement"},"content":{"rendered":"\n

<\/span>What is a SAFE Pro Rata Rights Agreement?<\/span><\/h2>\n\n\n\n

A SAFE Pro Rata Rights Agreement<\/strong> is a letter by which a company gives pro-rata rights to a SAFE investor. By using a SAFE Pro Rata Rights Agreement<\/strong>, a SAFE investor has the right to purchase more shares in a company if the company raises a further round or rounds of financing. The rights under a SAFE Pro Rata Rights Agreement<\/strong> are only exercisable after the SAFE has converted into preferred shares of the company at equity financing.<\/p>\n\n\n\n

<\/span>What is a Simple Agreement for Future Equity (SAFE)?<\/span><\/h2>\n\n\n\n

A Simple Agreement for Future Equity (SAFE) is a contract by which an investor makes a cash investment into a company in return for the rights to subscribe for new shares in the future. Under a Simple Agreement for Future Equity (SAFE), the investment is converted into equity when there is an \u201cequity financing\u201d, a \u201cliquidity event\u201d, or \u201ca dissolution event\u201d. Contrary to a Convertible Note, a Simple Agreement for Future Equity (SAFE) does not carry interest, does not expire, and does not specify a minimum amount of funds to be raised at the equity financing.<\/p>\n\n\n\n

<\/span>What is the main purpose of a SAFE Pro Rata Rights Agreement?<\/span><\/h2>\n\n\n\n

The main purpose of a SAFE pro-rata rights agreement is to provide an opportunity to the investor for maintaining their percentage of equity stake and voting power. For example, if an investor has a 20% of equity stake in a company, then they will be provided with an opportunity to maintain their current equity stake during the next round of the company financing. When a company issues new shares to raise the fund, an investor stake in a company will decrease because of the increase in the number of shares, as a result of their voting power also gets decreased while comparing the stakes on a percentage basis. So, to avoid this situation an investor is provided an opportunity to invest more to maintain their current percentage of stake in a company whenever a company issues new shares for further rounds of financing, which is known as pro-rata rights or venture capital financing.<\/p>\n\n\n\n

<\/span>On what basis are pro-rata rights calculated?<\/span><\/h2>\n\n\n\n

Pro-rata rights can be calculated in three different ways: on a percentage, dollar-for-dollar, or fixed-sum basis.
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