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Mileages vary, but I haven't found dilution to be a big problem. Dilution only gets large when companies go through near-death experiences, and those are often
by tlb 9y ago
Mileages vary, but I haven't found dilution to be a big problem. Dilution only gets large when companies go through near-death experiences, and those are often followed by real death.
Follow-on investments are economically just like making later-stage investments. The average return can be good, but you can also lose all your money and you need much more capital to participate.
- k__ 9y agoSure, but if the company does good and you believe in it, why not throw some extra money at it and get a bigger part of the pie :)
- tlb 9y agoSure. But you should think of it like a new late-stage investment, on par with investing in any other late-stage company whether you were in on the seed round or not. Concern about not getting diluted sounds like a sunk cost fallacy, which can lead to suboptimal decisions.
- rahimnathwani 9y agoThat was my first thought as well. Is there any good reason why these opportunities for follow-on investment might have higher expected returns than, e.g. putting the same amount of money into other seed investments? e.g. is it possible that if you participate in the follow-on, that you get some extra leverage to convert your previous shares into a more favourable class?
- SeoxyS 9y agoDoubling down on your winners can exponentially lift your returns. When you're an investor at an earlier stage, you have the best information and insight on how the company is really doing (information asymmetry) and have access to deals you would have no access to otherwise. (An angel doesn't get to invest in a good hot Series C unless they're already on the cap table.)