if you are a YC company, they own a percent of your company (usually around 7%). If you raise additional funding later, this will dilute every shareholder's per

if you are a YC company, they own a percent of your company (usually around 7%). If you raise additional funding later, this will dilute every shareholder's percentage down to accommodate the new investor. Traditionally YC did not have Pro Rata, which is the right to basically participate in the new round, to retain their original ownership percentage. Scenario: YC owns 7% New investor comes in and buys 20% YC dilutes 1.4% (which is 20% of their shares) With Pro Rata, YC could participate in the new round up to 1.4% of the total price of the company to maintain their 7%. Why this can be important: VCs are like beautiful but often panicky gazelles. They are easily spooked, and find comfort in the direction the herd is going. If an investor in a company in the previous round doesn't reinvest, this may look bad and cause them to back out. If YC invests in everyone's Pro Rata, it means that there'll be no apparent signal for the gazelles to act on. They'll hafta rely on their own judgement (crazy, I know.)