Follow-the-leader Investing

Definition

When secondary investors rely on a lead investor's due diligence rather than doing their own—lazy investing enabled by information asymmetry.

Example Usage

The Series B saw classic follow-the-leader investing, with eight investors joining Sequoia's round without meaningful due diligence.

Origin

Derogatory term within venture capital, emerged as the industry scaled.

Fun Fact

Follow-the-leader investing often results in overvaluation during bull markets and crashes during bear markets.

Source: Venture capital market analysis terminology

Related Terms

Intermediate

board observer

Someone who attends board meetings but lacks voting rights, typically a junior investor or potential future investor. They're flies on the wall with NDAs and calendars full of meetings they can't influence.

🚀 Startup / VC

Advanced

preference stack

The hierarchical order in which different classes of investors get paid during an exit, determined by liquidation preferences from multiple funding rounds. It's a legal game of Jenga where common stockholders usually lose.

🚀 Startup / VC

Intermediate

pro rata rights

The sacred privilege granted to investors allowing them to maintain their ownership percentage in future funding rounds by ponying up more cash. It's like a VIP pass that lets you keep throwing money at a company before it becomes wildly successful or spectacularly flames out.

🚀 Startup / VC

Advanced

non-participating preferred

Preferred stock that must choose between taking its liquidation preference OR converting to common and sharing the remaining proceeds—can't do both. The slightly-less-greedy version of investor terms.

🚀 Startup / VC

Beginner

warm intro

An introduction to an investor or customer through a mutual connection, vastly more effective than cold outreach. The difference between your email being read and being instantly deleted by an EA.

🚀 Startup / VC

Advanced

washout round

A financing so dilutive that existing shareholders are essentially wiped out, often following multiple bridge rounds and broken promises. The financial equivalent of starting over but with more emotional baggage.

🚀 Startup / VC

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