A follow-on decision should be judged as a new investment at today's price and today's evidence. What you already invested is gone either way and should not decide what you do next.
9 min read · Level 5
I think the hardest follow-on decisions are not the obviously bad bridge rounds but the ones that feel like loyalty. Declining to back a founder you respect in a difficult round is painful, and it is sometimes exactly right. The founder is best served by honest capital, not by capital given to avoid an uncomfortable conversation.
When a company you backed raises again, it is natural to think about the money already invested. That is the sunk cost trap. The earlier money is committed whatever you decide now; the only question is whether new money is best used here.
The fresh money test asks:
If I had never invested, and this round were offered to me today at this price, with this evidence, against every other use of the money, would I invest?
If the answer is yes, the follow-on may be sound. If the answer is no, investing to support or protect the earlier position is usually a mistake.
Insider information is the one legitimate advantage existing investors have. You may know the founders, the metrics and the problems far better than a new investor. That can justify a follow-on a stranger would decline - or a decline a stranger would miss. Use it as evidence, not as loyalty.
The common failure runs in both directions:
Investing more to rescue an earlier loss Declining a strong round because the price is higher than you paid before
Because follow-on decisions are where emotion most easily overrides judgement. Backing a struggling company again can feel like loyalty or like avoiding a loss, and passing on a company that has risen can feel like overpaying.
The money already invested is gone either way. Letting it decide the next cheque puts good money after bad or leaves strong opportunities unfunded.
Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.
Two follow-on requests in the same month.
Company A: struggling, raising a bridge at a lower price. The investor put in 50,000 before. Company B: growing strongly, raising at three times the price the investor paid.
The investor's instinct was to support A ("I don't want to lose my 50,000") and skip B ("too expensive now"). Applying the fresh money test, they asked whether they would buy either round as a new investor. Company A's evidence was weak; they would not. Company B's evidence was strong and the higher price was supported by results; they would. They declined A and followed on in B.
Deciding whether to invest more based on how much you have already invested or the price you paid previously, rather than on today's opportunity.
Describe the round as if a stranger offered it to you today, including price and evidence.
Ask whether the same money would be better used in a new investment or elsewhere.
List what you know that a new investor would not, and whether it supports or undermines the round.
Neither a higher nor a lower price than you paid is a reason in itself.
Whenever a company you hold asks existing investors to invest again.
Do not use the fresh money test to ignore genuine commitments, such as reserves you promised to deploy under a fund strategy. Even then, confirm the investment still makes sense.
Investors frequently describe companies raising several consecutive bridge rounds from existing investors, each extending runway briefly without a clear change in trajectory, before eventually shutting down. Many investor guides caution that repeated bridges without new evidence often increase total losses.
Before a second or third bridge, ask what specific evidence has changed since the last one.
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