Pro Rata Right or Wrong?

Published 25 Jun 2018
Reference 6414
Region Global
Summary

A start-up founder raises money from unsophisticated angel investors, and offers them the right to invest in future funding rounds (pro rata rights). Later, under pressure from a venture capitalist to minimize dilution, the founder deliberately does not remind the original angels of their opportunity to invest in the new funding round. She is not breaking any laws. However, she may have violated the angels’ trust.

Teaching objectives

Illustrate an ethical dilemma in start-up financing. What non-contractual obligations do founders have to their investors?

Keywords
  • Start-up
  • Angel Investing
  • Founder
  • Ethics
  • Venture Capital
  • Q41718