Rights & follow-on
Side letter
A short separate agreement giving a specific investor rights that are not in the main round documents — most commonly pro-rata, information rights or a board observer seat.
In plain English
A side letter is how the venture industry handles the fact that investors in the same round want different things. Rather than negotiating the main documents into something unwieldy, the company signs a one- or two-page letter with a particular investor covering their specific asks.
The typical contents are modest: pro-rata rights, information rights, sometimes an observer seat, occasionally an MFN. For angels, pro-rata is the item that justifies the exercise on its own.
Side letters are cheap to agree and easy to lose track of. They live outside the constitutional documents, they are not filed anywhere public, and a company that changes lawyers between rounds may genuinely not know what it has promised. Keep your own copy, and reference it explicitly when a new round is being planned.
Because they are individually negotiated, side letters vary in whether they survive later financings. A letter that terminates on a Series A gives you rights for the period in which you least need them.
What it means for your cheque
The ask is much easier than angels expect. A short, specific request — pro-rata rights and inclusion on the investor update list — made before you sign is usually granted without discussion, because it costs the founder nothing today and signals that you intend to keep supporting the company.
Keep it short. A two-page letter asking for two things gets signed. A six-page letter asking for eight things gets sent to a lawyer, generates a bill the company resents, and may not get signed at all. Ask for what you will actually use.
Do the arithmetic
What belongs in an angel's side letter
A realistic package for a $25,000 to $100,000 cheque, ordered by how likely it is to be granted.
| Inclusion on the investor update list | Almost always granted |
|---|---|
| Pro-rata rights in future rounds | Usually granted — the most valuable item |
| Annual accounts and cap table on request | Usually granted |
| MFN on future convertible instruments | Often granted on convertible investments |
| Board observer seat | Rarely granted below a large cheque |
| Consent rights over future financings | Not granted, and asking damages the relationship |
The first four cost the company nothing and take one page. Asking for the last two marks you as someone who has misjudged the size of their cheque.
At the table
What to negotiate
- Raise it before you commit, not after. Post-closing requests have no leverage behind them.
- Keep it to one page and two or three asks.
- Check the survival clause — rights that terminate at the next round are worth much less.
- Confirm the letter is signed by someone authorised to bind the company, and keep your own executed copy.
- Mention the letter at each new round. Companies forget, and reminding them early is easier than enforcing later.
Side letter: common questions
Is asking for a side letter unreasonable for a small cheque?
Does a side letter bind future investors?
Who drafts it?
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