Follow-on Investment
Additional investment made by existing investors in subsequent funding rounds to maintain or increase their ownership stake in a company.
Definition
Follow-on investment occurs when investors who participated in earlier funding rounds choose to invest additional capital in later rounds. This demonstrates continued confidence in the company and helps prevent dilution of their ownership percentage as the company raises more capital.
Why Investors Make Follow-on Investments
- • Prevent dilution of ownership percentage
- • Double down on successful investments
- • Maintain influence and board representation
- • Support portfolio companies through growth phases
- • Exercise pro rata rights
- • Signal confidence to other investors
Real-World Example
Growth Investment: An angel investor who put in $50K in the seed round invests another $100K in the Series A
This follow-on investment helps maintain their ownership percentage and demonstrates strong belief in the company's continued success.