One possible reason for pro-rata term that I don't see mentioned is preventing dilution due to an underpriced round. But since most of the time investors have to agree anyway to a new round that seems a minor concern.
Do you mean in a down round or just a round at a low price?
In my experience, any down round requires massive changes to ownership across the cap table, previous rights or not. The only way to stop this is with even more onerous terms that one doesn't normally see in VC term sheets.
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One possible reason for pro-rata term that I don't see mentioned is preventing dilution due to an underpriced round. But since most of the time investors have to agree anyway to a new round that seems a minor concern.
Do you mean in a down round or just a round at a low price?
In my experience, any down round requires massive changes to ownership across the cap table, previous rights or not. The only way to stop this is with even more onerous terms that one doesn't normally see in VC term sheets.
I mean a round on an artificially low price.
This is an contrived example: founders own the majority of the company and fundraise $1 from themselves at $1.01 post, wiping out existing investors.