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Seed Famine: The New Elite Clam Up


The Dirty Truth Behind Pro Rata Rights: How Investors are Getting Screwed Out of Lucrative Deals

In the cutthroat world of venture capital, pro rata rights are the golden ticket to cashing in on huge returns. But what happens when investors are priced out of later-stage deals and left with no choice but to swallow their pride? The answer is a dirty, little secret: the pro rata game is rigged against early investors.

Lee Edwards, partner at Root VC, is infamous for his mantra, "pro rata is earned, not given." But Edwards’ statement is nothing more than a cop-out, a thinly veiled excuse for the fact that new investors can outbid earlier investors by paying more per share. It’s like trying to compete with a Tesla in a Formula 1 racing competition – the rules may be the same, but the outcome is always going to be the same: an early exit.

So, what happens when early investors are squeezed out of later-stage deals? Do they just take a powder and accept their fate, or do they find a way to level the playing field? Enter the brave new world of pro rata funds, where institutional investors and family offices are teaming up to buy out earlier investors’ rights and reap the rewards for themselves.

Keith Teare’s SignalRank is one such fund, which aims to raise $33 million to snag pro rata opportunities. Steve Brotman’s Alpha Partners has already secured $125 million and is targeting $150 million in its next fund. And Jesse Bloom, partner at SaaS Ventures, has raised $24 million to invest in pro rata deals.

These funds may seem like a welcome solution to early investors, but they’re just a Trojan horse, designed to exploit their rights and reap the rewards for the deep-pocketed institutional investors. After all, who needs to work for pennies on the dollar when you can buy out everyone else and control the narrative?

As the venture capital landscape continues to shift, one thing is clear: the game is no longer about taking risks, it’s about taking advantage of early investors’ desperation. The question on everyone’s mind is: how long before the entire ecosystem collapses under the weight of its own greed?



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