What is Follow-On?
A later investment in a company the investor already backs. Funds hold part of their money in reserve for it, so they can add to companies that are doing well and limit dilution of their stake.
2nd check · same company · reserve 4 → 3
A follow-on investment is…
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In real work
The fund kept 40 percent of its capital in reserve, which let it make a follow-on investment when the lab-scheduling startup raised its Series A.
In the illustration
Six company drawers each hold one first-check coin and four coins wait in the reserve drawer. The GP's selector swings back to drawer 3, which is already funded, and one reserve coin drops in as a second check.
Plan follow-on reserves in your deal notebook for a $10 million fund writing 25 first checks: compare holding back 30, 40 and 50 percent, show the arithmetic, and list the tradeoffs without choosing for me.
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