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What Is Follow-On Funding? Here’s What You Should Know

A single round of funding probably won’t suffice. Most businesses go through multiple rounds of funding. Startups, for instance, typically go through four rounds of funding, including Seed, Series A, Series B and Series C. While you can seek funding from a variety of different sources, you may want to look at your business’s existing investors. They can provide you with follow-up funding that allows your business to grow and expand.

What Is Follow-On Funding? Here’s What You Should Know

Overview of Follow-On Funding

Follow-on funding refers to funding from an existing investor. Private equity and venture capital firms are investors. If they recognize future value in your business, they may agree to invest it. A private equity or venture capital firm may purchase an ownership stake in your business.

Some investors may continue to buy additional ownership stakes in your business. If your business needs additional capital, you can initiate another round of funding. Even if a private equity or venture capital firm has already invested in your business, it may offer to purchase an additional ownership stake, which is considered follow-on funding.

Follow-on funding is essentially the opposite of first-time funding. First-time funding involves a private equity or venture capital firm investing in your business for the first time. Follow-on funding, conversely, involves a private equity or venture capital firm investing in your business for an additional time.

Advantages of Follow-On Funding

When compared to external funding options, follow-on funding is easier. You’ll have an easier time convincing a private equity or venture capital firm to invest in your business. After all, they’ve already invested in your business, so they recognize the future value and success of your business. If you seek capital from a new private equity or venture capital firm, you’ll have to convince them that your business is worth investing in, which may or may not be easy.

Another benefit of follow-on funding is ownership consolidation. All forms of private equity financing involve the sale of ownership. You’ll have to sell an ownership stake in your business to an investor. The more investors from which you can raise equity capital, the more owners your business will have.

With follow-on funding, you can raise capital for your business without increasing the number of owners it has. Follow-on funding comes from an investor. Therefore, you can use it for ownership consolidation purposes.

This article was brought to you by Intrepid Private Capital Group – A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • January 13, 2022


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