# Follow-on investment

> A follow-on investment is money a fund puts into a company it already backs, in a later round. Funds set aside reserves for follow-ons and decide case by case whether to use them, often to take up pro rata rights in companies that are doing well. A follow-on investment is a fresh decision on new evidence, not an obligation that comes with the first cheque.

Source: https://delsivo.com/glossary/follow-on-investment · Updated 2026-11-06

## Key takeaways

- Reserves are money kept back for later rounds in existing companies.
- Treat each follow-on as a new decision with its own memo.
- Not following on can send a signal to new investors.

## How follow-on investment decisions are made

When a portfolio company raises again, the fund looks at what has changed since its first cheque: traction against the plan, the new terms, the new lead and how much of its reserves the round would use. Many funds write a short memo and take it to the same committee that made the first decision.

## An example

A fictional seed fund owns 10 percent of a company raising a $10 million Series A. Its pro rata allocation is $1 million. Revenue has grown well but churn is rising, so the committee approves $600,000, keeping the rest of the reserve for a company with clearer momentum.

## Reserves and portfolio strategy

Funds decide at the outset roughly how much of the fund goes to first cheques and how much to follow-ons. Too little in reserve and the fund is diluted in its best companies; too much and it backs fewer companies to begin with. See [pro rata rights](https://delsivo.com/glossary/pro-rata-rights) and [dilution](https://delsivo.com/glossary/dilution).

## Common confusions

- Follow-on versus pro rata: pro rata is the right to invest; a follow-on is the decision to use it, or to invest more or less.
- Insider rounds and bridges are follow-ons led by existing investors, often when outside interest is weak.
- A follow-on is not a rescue by default. It should rest on evidence, like the first cheque.

## Frequently asked questions

### Do venture funds always follow on?

No. Funds decide each case on new evidence and the reserves available. Some follow on only in their strongest companies.

### What signal does a fund send by not following on?

New investors may ask why. Funds that explain their reserve strategy to founders early can limit the effect.

### How much do funds reserve for follow-ons?

It varies by strategy. Each fund sets its own target, usually in its fund model before it starts investing.

## Related pages

- [Pro rata rights](https://delsivo.com/glossary/pro-rata-rights)
- [Dilution](https://delsivo.com/glossary/dilution)
- [Investment committee](https://delsivo.com/glossary/investment-committee)
- [Revisit milestones note](https://delsivo.com/templates/revisit-milestones-note)