Under this right, whenever the company plans to raise fresh funds, the company would be required to make an offer to the existing investor to subscribe to additional shares such that the stake of the investor does not dilute. Please note that this is not an obligation but a right of the investor. Further, the existing investor would have to pay the new price. They are also called pro-rata rights, anti-dilution provisions, or subscription rights.

For example, the founder has 80% of the company and an investor has 20%. In the new round, the capital structure becomes as follows: Founder: 68%, Existing investor: 17%, New investor: 15%. In this case, if the existing investor has pre-emption rights then the company would have to mandatorily offer another 3% stake to the investor.

The issue in providing these rights is that in later rounds, you might see that the investors are only willing to invest in your company if they get a sizeable pie of equity. If you have given a lot of pre-emptive rights, this might be difficult.