Today, we’re talking about giving Angel investors pro rata rights. As a founder, in almost all cases, you should be willing to give this to your angel investors.
1. They’re not asking a lot. Asking for the right to maintain your existing percentage ownership, through buying higher priced shares, is a perfectly reasonable request from an investor.
2. For most founders, their angel investors believed and invested long before the big VCs got involved. So ot’s completely appropriate for you to reward that early risk taking. Those angels gave you the chance to make the VCs care.
3. It’s usually not a lot of capital, when compared to the round size. For example — let’s start with a 25k angel check in a $7.5M post-money round, when that company goes on to raise a $5M round on a $20M post money, the angel would only be asking to invest $16k, of $5M, to maintain their stake. Even if you took $250k of angel investment, you would still only need $160k of allocation for the pro rata from the much larger $5M total.
