When you’re raising subsequent rounds of financing, we can invest up to our risk management limit. In practice, this usually means we can participate in the first round of financing after we invest, if any. We also have the flexibility to invest effectively unlimited amounts of capital through Special Purpose Vehicles, where appropriate.
We have a decade of experience working with other VCs who make later-round investments, lenders, and other financiers. We are glad to introduce you to the right capital sources in our network.
When limited partners, our investors, ask us this question, here’s how we answer:
The conventional wisdom in tech VC is to double down on perceived “winners” regardless of price. We disagree with both parts of that sentence. In conventional VC there’s usually great business risk at every single round, so it’s often opaque who are the “winners”. Any unprofitable company is inherently vulnerable to the kindness of strangers (investors). And even a profitable company still faces other types of business risk. And secondly, all investors face the risk of investing at a valuation which is too high and/or a poor structure.
We evaluate follow-ons as though it were the first time we were investing in the business. The question we try to answer is the following: knowing what we now know about the team and business, would we invest in the company at this valuation?
That said, we cannot invest more than a single-digit percentage of our fund in any one company. This creates a built-in limit on follow-on investments, both because many of our companies do not raise follow-ons because they’re managing their cap table conservatively, and because we think we’ll generate higher returns if we stay focused on early-stage investing.