Pre-emption Rights

The right of existing shareholders to purchase new shares before they are offered to outside investors, allowing them to maintain their proportional ownership percentage in subsequent funding rounds.

Pre-emption rights give existing investors the first opportunity to participate in future rounds and protect founders from strategic investors acquiring large stakes through later rounds. Understanding them is essential for managing the cap table and investor relations over time.

A founder raises a seed round and grants investors pre-emption rights. When she raises her Series A, she is legally required to give existing investors the opportunity to invest proportionally before offering the round to new investors. Her seed investor exercises the right, maintaining their 12% ownership.