How to make money with pro rata rights:
- Exercise the pro rata, no matter the valuation, as long as the company is underpriced. Heuristically: a smart VC is leading an up round in the company.
- Lead an inside round so you can buy more than just your pro rata.
- Get a supra pro rata. Alternatively: convince the company to cut out other investors who have pro rata rights, so you can buy more than just your pro rata.
- Sell the pro rata right.
- Buy so much of the company in the first round, at such a low price, that you don’t need a pro rata. This probably isn’t realistic, but incubator investments are a little like this.