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A Pro-rata side letter to Investment agreement gives existing investors the right to maintain their ownership percentage when a company issues new shares in future funding rounds. In Nigeria's growing startup ecosystem, these letters protect early investors from having their stakes diluted when companies raise additional capital.

The letter typically outlines specific triggers for these rights, participation thresholds, and notice requirements under Nigerian investment laws. It's particularly important for angel investors and venture capital firms investing in Nigerian tech startups, as it helps them preserve their voting power and economic interests as companies grow through multiple funding rounds.

Use a Pro-rata side letter to Investment agreement when investing in high-growth Nigerian startups, especially if you're putting in significant early-stage capital. This document becomes crucial before any initial investment round closes, particularly in tech and fintech sectors where multiple funding rounds are common.

The timing matters most when dealing with promising companies likely to attract future investors. Nigerian investment regulations protect minority shareholders, but this letter adds an extra layer of security. It's essential to negotiate these rights during your initial investment���waiting until later funding rounds puts your ownership stake at risk of significant dilution.

• Basic Pro-rata Right: A straightforward Pro-rata side letter to Investment agreement that grants investors the right to maintain their ownership percentage in future rounds, common in Nigerian seed-stage deals
• Enhanced Participation Rights: Includes additional provisions for information rights and observer seats on the board, popular among institutional investors
• Weighted Pro-rata Rights: Adjusts participation rights based on investment size or timing, often used in multi-stage funding rounds
• Industry-Specific Pro-rata: Contains sector-specific provisions, particularly for fintech companies subject to Nigerian banking regulations

• Early-Stage Investors: Angels and VCs who request Pro-rata side letters to protect their investment stake in Nigerian startups as they grow
• Company Founders: Startup leaders who negotiate and sign these agreements, balancing investor rights with flexibility for future fundraising
• Corporate Lawyers: Nigerian legal professionals who draft and review these letters, ensuring compliance with local investment laws
• Investment Advisors: Financial experts who help structure deals and negotiate pro-rata rights terms
• Company Secretaries: Corporate officers who maintain these agreements and ensure proper execution during subsequent funding rounds

• Investment Details: Gather exact investment amount, current valuation, and shareholding percentages of all investors
• Future Rounds: Define trigger events and participation thresholds for pro-rata rights in upcoming funding rounds
• Company Information: Collect company registration details, shareholder agreements, and existing investment documentation
• Notice Requirements: Specify timeframes for notification of new funding rounds and response deadlines
• Compliance Check: Review Nigerian investment laws and CAC regulations regarding share issuance and transfer restrictions
• Template Selection: Use our platform's customizable pro-rata side letter template to ensure all essential elements are included

• Parties and Recitals: Full legal names of investor and company, plus reference to main investment agreement
• Pro-rata Rights Definition: Clear explanation of participation rights and calculation method for future rounds
• Notice Provisions: Specific timelines for notifying investors of new funding rounds
• Exercise Mechanics: Detailed process for exercising pro-rata rights and payment terms
• Term and Termination: Duration of rights and conditions for expiration
• Governing Law: Explicit reference to Nigerian law and jurisdiction
• Execution Block: Proper signature spaces for authorized representatives of all parties

A Pro-rata side letter to Investment agreement is often confused with a standard Investment Agreement, but they serve distinct purposes in Nigerian business law. While both deal with investment terms, their scope and application differ significantly.

• Purpose and Scope: Pro-rata side letters focus specifically on future investment rights, while Investment Agreements cover the entire investment relationship, including valuation, voting rights, and exit provisions
• Timing of Use: Pro-rata side letters are typically issued alongside or after the main Investment Agreement, specifically to address future funding rounds
• Legal Standing: Pro-rata side letters supplement the main Investment Agreement rather than replace it, giving investors specific rights that might not be covered in the primary document
• Flexibility: Pro-rata side letters can be more easily modified or terminated without affecting the main investment terms, making them more adaptable to changing circumstances