General Partners (GPs) prioritize speed and certainty when allocating co-investment opportunities. LPs who build a reputation for fast, reliable decision-making can punch far above their weight, gaining access to deals disproportionate to their fund commitment size.

By defending the pro rata rights of early backers against new, powerful investors, founders play an "infinite game." This builds a reputation for fairness that compounds over time, attracting higher-quality partners and investors in future rounds.

For a seed fund, the initial check is less critical than subsequent follow-on decisions. Driving top-tier returns requires a reserve-heavy model to pile capital into the 5-10% of portfolio companies that demonstrate breakout potential, as these few winners will generate the lion's share of returns.

Emerging VC funds can sell small portions of their winning investments without creating the negative market signals a large fund like Sequoia would. This allows them to return capital (DPI) to LPs sooner, a crucial factor in securing their next fund in a DPI-focused environment.

Given the power-law dynamics of venture returns and the difficulty of predicting winners, a viable LP strategy is to participate in every co-investment offered by trusted GPs. This portfolio approach increases the odds of capturing one of the few breakout companies that drive all returns.

Successful concentration isn't just about doubling down on winners. It's equally about avoiding the dispersion of capital and attention. This means resisting the industry bias to automatically do a pro-rata investment in a company just because another VC offered a higher valuation.

Rather than competing with mega-firms to lead rounds, small or solo GPs can secure allocations in top deals by being a complementary, neutral "Switzerland" investor. This strategy involves writing a smaller, non-threatening check as the second or third investor on a cap table.

For Khosla Ventures, automatically exercising pro-rata rights is a sign of lazy investing. Each funding round is an opportunity to re-evaluate a company's trajectory. A firm should either be pounding the table to invest three times their pro-rata or cutting back significantly, not passively maintaining their stake.

Pro-rata rights, often seen as a crucial term for VCs, are fundamentally misaligned with founder interests. They function as a call option against the entrepreneur, creating negative signaling and complications in future funding rounds. Investors should have to re-earn their right to invest more money in every subsequent round.