Follow-On Investment

Definition

Definition Follow-on investments increase exposure to a company already in the portfolio. They can be used to maintain ownership, support growth, protect downside, or take advantage of favorable risk-reward after new information. Follow-on strategy is a major determinant of venture outcomes because ownership and timing shape returns. Allocator Context Allocators evaluate follow-on discipline: reserve policies, decision criteria, and whether follow-ons are used selectively or as emotional support for struggling positions. Institutions also look at how follow-ons affect concentration and whether the fund’s capital is being allocated to the best opportunities rather than the loudest problems. Decision Authority Follow-on policy is often embedded in the fund model and reviewed in diligence. For concentrated funds, heavy follow-ons can trigger internal exposure concerns and impact re-up decisions. Why It Matters for Fundraising Managers who can explain follow-on philosophy clearly—reserves, ownership targets, and decision rules—are easier to underwrite. Allocators want confidence that capital allocation inside the fund is as disciplined as initial sourcing. Key Takeaways Follow-ons shape ownership and outcomes Requires reserve discipline and clear decision rules Can increase concentration if unmanaged Strong follow-on framework improves LP confidence