Follow-On Investment
Additional capital a VC invests in a company in later rounds to maintain or increase their stake.
Definition
A follow-on investment is when an existing investor puts more money into a portfolio company in a subsequent funding round. VCs typically reserve 50-70% of their fund for follow-on investments in their best-performing companies. Follow-on investment is a strong signal of conviction; if your lead investor does not follow on, it may be a warning sign. Conversely, aggressive follow-on suggests the VC sees strong potential.
Why it matters
When existing investors follow on, it signals confidence and helps the round come together. If your lead VC declines to follow on, new investors may question why, making the fundraise harder and potentially leading to a down round.
Example
A VC invested $5M in a company's Series A. At Series B, they invest another $8M (follow-on) to maintain their 15% stake. The fund reserved capital specifically for this follow-on. If they had declined, it would have raised red flags for Series B investors.