follow-on funding

Definition

Additional investment in portfolio companies by existing investors in subsequent rounds. Doubling down on your bets or, less charitably, throwing good money after bad while hoping the first investment wasn't a complete disaster.

Example Usage

The fund reserved 50% of its capital for follow-on funding, allowing them to support winners while abandoning the rest to dilution.

Origin

Investment management terminology adapted to venture capital practices

Fun Fact

Many venture funds fail to reserve adequate capital for follow-on investments, forcing them to watch their best companies get diluted as other investors step in.

Source: Venture capital investment strategy terminology

Related Terms

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burn multiple

A capital efficiency metric calculated as net burn divided by net new ARR, measuring how many dollars a company incincinerates to generate each dollar of recurring revenue. A burn multiple under 1.5x suggests efficiency; above 3x suggests a bonfire of investor capital.

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no-shop clause

A provision preventing startups from soliciting other offers while negotiating terms, ensuring you can't play investors against each other. The dating equivalent of 'we're exclusive now' after one coffee.

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lock-up period

A contractual restriction preventing insiders from selling shares after an IPO, typically 90-180 days. Because letting founders dump all their stock on day one would be honest but catastrophic for stock price.

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Elevator Pitch

A 30-second summary of your startup that you deliver to investors in elevators, coffee lines, and restraining-order-adjacent proximity. If you can't explain your company in the time it takes to ride an elevator, your company is either too complicated or the elevator is too fast.

🚀 Startup / VC

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Seed Round

The first significant round of funding, where investors plant money in your startup like seeds in a garden, fully expecting that most gardens will produce nothing but weeds and regret. It's typically between $500K and $5M, which is a lot of money for a PowerPoint presentation.

🚀 Startup / VC

Beginner

founder vesting

A schedule requiring founders to earn their equity over time, typically 4 years with a 1-year cliff. The investor-imposed acknowledgment that founding a company doesn't mean you'll stick around to build it.

🚀 Startup / VC

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