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A Pro-rata side letter to Investment agreement gives existing investors in Saudi companies the right to maintain their ownership percentage in future funding rounds. It's a crucial document that protects investors from having their shares diluted when the company raises additional capital, aligning with the Kingdom's 2030 Vision for robust private sector growth.

Under Saudi commercial law and CMA regulations, these letters specify exactly how many new shares existing investors can purchase in subsequent rounds, usually matching their current ownership percentage. They're particularly important in the growing Saudi startup ecosystem, where multiple funding rounds are common and investors need clear mechanisms to preserve their stake.

Use a Pro-rata side letter to Investment agreement when investing in high-growth Saudi companies, especially startups planning multiple funding rounds. This document becomes essential before closing your initial investment, particularly in sectors like technology and healthcare where rapid scaling often leads to frequent capital raises.

It's most valuable when investing alongside other strategic investors in CMA-regulated entities, or when dealing with companies that have clear expansion plans requiring future funding. The timing matters - adding this protection after the initial investment becomes much harder, as companies and other investors may resist changing established terms. Saudi courts strongly favor written agreements established at the outset of investment relationships.

• Basic Pro-rata: Pro-rata side letters in Saudi investment agreements typically start with a simple right to maintain ownership percentage in future rounds, matching current CMA guidelines.
• Enhanced Protection: Some versions include additional investor safeguards like information rights and board observation privileges aligned with Shariah compliance requirements.
• Conditional Pro-rata: These variations set specific triggers or minimum investment thresholds for pro-rata rights, common in Saudi venture capital deals.
• Time-Limited: Letters that expire after certain funding rounds or timeframes, often used in early-stage technology investments.
• Industry-Specific: Customized versions for regulated sectors like fintech or healthcare, incorporating relevant Ministry requirements.

• Investment Firms: Saudi and international VCs, private equity firms, and angel investors who want to protect their ownership stakes in future funding rounds.
• Legal Counsel: Saudi-licensed attorneys who draft and negotiate these letters to ensure CMA compliance and Shariah principles are met.
• Portfolio Companies: Startup founders and management teams who must honor pro-rata rights when raising additional capital.
• Board Members: Company directors who approve future share issuances and ensure pro-rata rights are respected.
• Investment Bankers: Advisory professionals who structure funding rounds while maintaining existing investors' rights.

• Investment Details: Gather current ownership percentages, share classes, and investment amounts for all participating investors.
• Company Information: Collect the company's commercial registration, articles of association, and current capitalization table.
• Future Plans: Document anticipated funding rounds and growth projections that trigger pro-rata rights.
• CMA Compliance: Review current Saudi investment regulations and Shariah requirements affecting share issuance.
• Existing Agreements: Analyze other investment documents to ensure pro-rata rights align with existing obligations.
• Approval Process: Map out required corporate approvals and signatories for implementing pro-rata rights.

• Party Details: Full legal names, commercial registration numbers, and authorized representatives of both investor and company.
• Pro-rata Rights: Clear definition of participation rights, calculation method, and notice requirements for future rounds.
• Trigger Events: Specific conditions that activate pro-rata rights, including types of share issuances covered.
• Time Limitations: Duration of pro-rata rights and any expiration conditions under Saudi law.
• Shariah Compliance: Statement confirming alignment with Islamic finance principles.
• Governing Law: Express reference to Saudi Arabian law and CMA regulations.
• Execution Block: Arabic and English signature sections with official company stamps.

A Pro-rata side letter to Investment agreement differs significantly from a standard Investment Agreement in both scope and purpose. While both documents operate within Saudi Arabia's investment framework, they serve distinct functions in protecting investor interests.

• Scope and Focus: Pro-rata letters specifically address future investment rights, while Investment Agreements cover the entire investment relationship, including valuation, governance, and exit rights.
• Timing of Use: Pro-rata letters typically accompany or follow the main Investment Agreement, acting as a supplementary protection mechanism.
• Legal Flexibility: Pro-rata letters can be modified or terminated more easily than the main Investment Agreement under Saudi law.
• Party Involvement: Investment Agreements bind all shareholders, while Pro-rata letters often apply only to specific strategic investors.
• CMA Requirements: Investment Agreements need full CMA compliance review, while Pro-rata letters face lighter regulatory scrutiny.