Follow-on investment

Definition

More money from the same backers, after the first round is in.

Why It Matters

It is the question that decides whether a backed searcher can buy a second business or fix a first one, and it is rarely on the term sheet. Investors who reserve capital for follow-ons can fund an add-on or a bad year without a new raise; investors who do not will send you back to the market at the worst possible moment, from a position where they already own most of the equity. Ask directly what is reserved and on what test it gets released, because the answer changes what kind of company you should be hunting.