Pro rata is a bad term for founders
blog.aaronkharris.com
Pro rata is a bad term for founders
1–10 of 44 posts
Re: Pro rata is a bad term for founders
#2Completely agreed. Current pro rata rights are mostly a legal fiction that mostly harm founders with less experience or leverage. The right should be explicitly negotiated!
Re: Pro rata is a bad term for founders
#3This seems odd to write, as [I believe] YC has one of the strongest, least-founder-favorable versions of pro rata. YC sets so many market terms for startups, they could change this dynamic.
Re: Pro rata is a bad term for founders
#4This seems odd to write, as [I believe] YC has one of the strongest, least-founder-favorable versions of pro rata. YC sets so many market terms for startups, they could change this dynamic.
Specific terms that offer pro rata re-assignment at YC discretion:
"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."
Re: Pro rata is a bad term for founders
#5The thing is accounting for the risk and the lack of liquidity and opportunity cost I don't think it is worth coming to the table for most investors without pro rata. That's from my own calculations and some others posted here and there. Essentially, if you don't have pro rata or something equivalent to bet more on the winning horse the rational decision would be to place money in the stock or commodities market honestly with much less risk.
But yeah you should pick an investor according to what you want-- help and advice as part of the package is valuable and good investors and advisors give it openly.
Curious of course on feedback on this -- do other people get different numbers? P.S. Maybe that is the idea for this post from someone from YC? Push away other future investors? :D
Re: Pro rata is a bad term for founders
#6This seems odd to write, as [I believe] YC has one of the strongest, least-founder-favorable versions of pro rata. YC sets so many market terms for startups, they could change this dynamic.
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Re: Pro rata is a bad term for founders
#7This seems odd to write, as [I believe] YC has one of the strongest, least-founder-favorable versions of pro rata. YC sets so many market terms for startups, they could change this dynamic.
Specific terms that offer pro rata re-assignment at YC discretion: "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,…
I think this is exactly why the post was written. Aaron isn't saying that YC has a great pro-rata program. I took his writing as stating that he thinks it needs to be reconsidered, and that it is bad as it currently stands.
Re: Pro rata is a bad term for founders
#8Earlier quoted context omitted.
Specific terms that offer pro rata re-assignment at YC discretion: "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,…
I think this is exactly why the post was written. Aaron isn't saying that YC has a great pro-rata program. I took his writing as stating that he thinks it needs to be reconsidered, and that it is bad as it currently stands.
Yep, odd is probably the wrong word, I just find the specific transferability term egregious.
Re: Pro rata is a bad term for founders
#9This seems odd to write, as [I believe] YC has one of the strongest, least-founder-favorable versions of pro rata. YC sets so many market terms for startups, they could change this dynamic.
Specific terms that offer pro rata re-assignment at YC discretion: "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,…
That seems like a boilerplate right to assign to affiliates, not unaffiliated third parties or LPs. Not sure why you find that problematic?
Re: Pro rata is a bad term for founders
#10One possible reason for pro-rata term that I don't see mentioned is preventing dilution due to an underpriced round. But since most of the time investors have to agree anyway to a new round that seems a minor concern.