What does pro-rata mean?
Pro-rata is a Latin term meaning “in proportion”. In corporate finance, it describes the proportional division of shares, rights or distributions based on each holder’s existing ownership percentage. Pro-rata rights are the common mechanism for maintaining ownership in subsequent rounds.
Pro-rata calculations also govern dividend distributions, liquidation proceeds (within each class), and share buybacks. Side letters frequently grant strategic investors super pro-rata rights to maintain or increase their ownership in future rounds.