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Your champion at the big fund leaves
The attractive offer
A mega-platform offers a founder more money at a higher price, usually from a junior investor who lets the founder do the work and stays out of the way. That sounds amazing.
When the champion leaves
Then the principal who made the investment moves on, to start a fund or join another one. Without that person, nobody at the firm is able to sit with the partnership and propose another five to ten million, because the champion is gone. It happens all the time, though not every time.
The 95% problem
If the company hasn't reached the revenue growth that earns attention, the firm turns to its real winners, the ones worth two or three billion dollars. For roughly 95% of entrepreneurs, the mandate for further funding is dead. Most founders never place themselves in that group, because each one believes they are the 5%.
Why does an inside investor's silence matter?
When existing investors decline to join a new round, prospective investors often take it as a sign that those closest to the company are unimpressed. Economists call this signaling, and the theory traces to Michael Spence's 1973 work on job-market signaling. Venture investors know the dynamic well, so a refusal from an insider can make a round harder to complete. Spence shared the 2001 Nobel Prize in economics for this work.
How do funds decide where to reserve money?
Venture funds usually hold back a share of their capital for follow-on investments rather than spending it all on first checks. Those reserves tend to go to the companies showing the strongest growth, since adding to a winner offers better odds than rescuing a laggard. Partners review each company's progress and rank them against one another. Pro rata rights, written into the original investment terms, give an investor the option to buy into later rounds.
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