Counsel & Capital: The SHA Series #5- Pre-Emptive Rights

By Aditi Sachdev & Naveen Jain- A lawyer-investor collaboration demystifying the fine print of startup deals

First Dibs, Not Leftovers

When the cake gets bigger, your slice shouldn’t shrink.

That’s the idea behind pre-emptive rights. A quiet but essential safeguard that protects early investors from being sidelined as the company grows and new funding rounds come in.

In this edition, we’re unpacking what pre-emptive rights are, why they matter, and how to design them so they protect momentum, and not block it.

What Are Pre-emptive Rights?

Pre-emptive rights give existing shareholders the first right to participate in new share issuances, before they’re offered to outsiders.

If an investor owns 10% of the company, they have the right (but not the obligation) to buy 10% of any new round, allowing them to maintain their ownership percentage.

It’s not a guarantee that they’ll reinvest. But it is a guarantee that they get the chance to

Why do Pre-emptive Rights Matter?

The 3 Levers of Pre-Emptive Rights

Lever 1: Trigger Events: What sets the right in motion?

Tip: Stick to a narrow trigger. Focus on real fundraising events, not internal restructurings

Lever 2: Formula for Future Subscription: Participation Matters

Tip: Reserve super pro-rata for exceptional investors only, and define clear caps

Lever 3: Exercise Period: Timing Shapes Participation

Tip: Most rounds benefit from a 7–15 day window to avoid process gridlock

A Practical Example and Scenarios

Stakeholder POVs: Who Should Watch Out for What?

Takeaway: Design Pre-emptive Rights to Work for, Not Against, the Round

When used right, pre-emptive rights are momentum guards, not growth blockers. But how they’re drafted can tip the balance either way.

When structured right, pre-emptive rights give investors the confidence to stay in, allow founders to move faster, and keep future fundraises clean.