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A Pro-rata side letter to Investment agreement gives existing investors the right to maintain their ownership percentage in future funding rounds. It's a key document in Hong Kong's venture capital landscape, protecting investors from dilution when companies raise additional capital.

The letter spells out exactly how and when investors can purchase new shares to keep their stake steady. Under Hong Kong securities laws, these rights must be clearly documented and typically include specific notice periods, pricing terms, and any conditions that might limit the pro-rata rights. Many local startups and growth companies use these letters to keep their early backers engaged while raising new funds.

Use a Pro-rata side letter to Investment agreement when bringing in new investors while protecting existing ones, especially in Hong Kong's fast-growing startup ecosystem. This document becomes essential during Series A rounds and beyond, when your company needs to balance fresh capital with maintaining good relationships with early backers.

It's particularly valuable when dealing with sophisticated investors who expect anti-dilution protection, or when your funding strategy involves multiple rounds. The letter helps avoid disputes later by clearly documenting participation rights upfront. Many Hong Kong venture capitalists and angel investors now consider these letters standard for investments above HK$5 million.

• Basic Pro-rata Rights: Standard letter granting investors the right to maintain ownership percentage in future rounds, typically used for early-stage Hong Kong startups
• Enhanced Participation Rights: Includes additional provisions for strategic investors, like information rights and board observation privileges
• Qualified Pro-rata Rights: Contains specific conditions or caps on participation rights, common in later funding rounds
• Full Participation Rights: Comprehensive version giving investors complete access to all future financing rounds, preferred by major venture capital firms
• Limited Duration Pro-rata: Sets specific time limits or funding round restrictions on participation rights, popular with angel investors

• Venture Capital Firms: Primary beneficiaries who request these letters to protect their investment position in portfolio companies
• Startup Founders: Sign and implement these agreements when raising capital, often negotiating terms with multiple investors
• Corporate Lawyers: Draft and review the letters to ensure compliance with Hong Kong securities regulations
• Angel Investors: Often request pro-rata rights to participate in future rounds alongside larger institutional investors
• Company Secretaries: Maintain records and ensure proper execution of pro-rata rights during subsequent funding rounds

• Investment Details: Gather exact ownership percentages, share classes, and investment amounts from the original agreement
• Future Round Terms: Define notice periods, pricing mechanisms, and participation thresholds for upcoming funding rounds
• Company Information: Collect current capitalization table, corporate structure, and any existing investor rights agreements
• Investor Eligibility: Confirm investor qualifications under Hong Kong securities laws and any transfer restrictions
• Timeline Requirements: Set clear deadlines for exercising pro-rata rights and payment terms for future rounds
• Documentation Review: Our platform generates precise, compliant letters tailored to Hong Kong regulations, minimizing drafting errors

• Party Identification: Full legal names and addresses of the investor and company, plus registration details
• Rights Definition: Clear explanation of pro-rata participation rights and calculation methods
• Notice Requirements: Specific timelines and procedures for notifying investors of new funding rounds
• Price Mechanisms: Terms for determining share price and payment conditions in future rounds
• Duration Clause: Explicit timeframe or conditions for when these rights expire
• Hong Kong Law: Statement confirming Hong Kong as governing jurisdiction
• Execution Block: Authorized signature sections with company chop requirements per local practice

A Pro-rata side letter to Investment agreement differs significantly from a standard Investment Agreement. While both deal with investment terms, they serve distinct purposes in Hong Kong's venture capital ecosystem.

• Scope and Purpose: Pro-rata side letters focus specifically on future investment rights, while Investment Agreements cover the entire investment relationship, including valuation, governance, and exit rights
• Timing of Use: Side letters typically come into play during subsequent funding rounds, whereas Investment Agreements govern the initial investment terms
• Legal Structure: Side letters supplement the main Investment Agreement, acting as an addendum rather than a standalone contract
• Negotiation Flexibility: Pro-rata rights can be modified through side letters without revising the entire Investment Agreement, making them more adaptable to changing circumstances