Side Letter

A side letter is a standalone contract between a company and one specific investor, granting rights that aren't extended to every investor in the round — most commonly pro-rata rights, information rights, most-favored-nation protection, or a board observer seat. It exists alongside, but separate from, the main stock purchase and investor rights agreements everyone signs.

Side letters are common when a SAFE round doesn't otherwise include formal investor rights documentation, letting a company grant a strategically important investor (a fund providing real value, or one anchoring the round) extra protections without renegotiating terms for every other investor in the round.

The term also has a fund-level meaning. A GP signs side letters with individual LPs to modify or supplement the fund's limited partnership agreement for that LP alone — fee reductions, extra reporting, co-investment rights, an advisory committee seat, or tax and regulatory provisions an institution's compliance team requires. They're a normal, disclosed part of institutional fundraising, not backroom deals.

In both contexts, the most-favored-nation clause is the term to watch. At the fund level, an MFN lets an LP elect better terms the GP grants other LPs, often limited to terms given to LPs of the same or smaller commitment size. At the company level, an MFN can ripple through every prior SAFE holder the moment a better term is granted to someone new.

On Y Combinator's standard post-money SAFE, pro rata rights aren't in the SAFE itself — YC says the pro rata right lives in an optional, standardized side letter. Investors who assume their SAFE includes pro rata and never sign the letter discover the gap at the priced round.