Follow on investment refers to additional investments made by venture capital or private equity firms in companies that are already part of their portfolio and have shown signs of success. As startups grow and require further funding to scale up operations, expand into new markets or develop new products, investors provide follow on funding to support the next stage of growth.
Reasons for making follow on investments
Venture capitalists make follow on investments for several reasons:
– To avoid dilution of their ownership stake if new investors come in
– To support portfolio companies that are performing well
– To retain control over the business
– To capitalize on growth opportunities
Benefits of receiving follow on funding
For startups and growing companies, getting follow on funding from existing investors has many benefits like:
– Speed in completing the new funding round
– Investor confidence in the business
– Better valuation and terms
– Operational support from investors
Risks associated with follow on investments
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In summary, follow on funding refers to additional investments made in portfolio companies by venture capital and private equity firms. It helps startups pursuing growth opportunities to scale further with support from existing knowledgeable investors.