I’m going to tell you something that might sound crazy. I personally oversee our investments in over a dozen companies, and I don’t have a massive team of analysts doing the heavy lifting. People hear that and think I’m either a madman or a liar. The truth is, I rely on a system. A simple, repeatable system for follow-on investing that keeps our fund on track and our portfolio companies thriving.
Most people think venture capital is all about finding the next unicorn and cutting a huge check. That’s the sexy part, the part that gets all the attention. But the real work, the work that separates the top 1% of funds from the rest, is what happens after that first investment. It’s the follow-on rounds, the strategic support, and the disciplined decision-making that truly builds a billion-dollar fund.
The Myth of the "Spray and Pray"
So many VCs, especially the newer ones, fall into the “spray and pray” trap. They raise a fund, write a bunch of small checks into a ton of companies, and then just hope a few of them hit it big. It’s a passive approach, and frankly, it’s a lazy one. You’re not really an investor at that point; you’re a gambler. You’re throwing darts in the dark and hoping one sticks.
I’ve seen it happen time and time again. A promising company with a great team and a solid product starts to lose momentum. They need a bridge round to get to their next milestone, but their early investors are nowhere to be found. They’re too busy chasing the next shiny object to pay attention to the companies they’ve already backed. That’s how good companies die.
My philosophy is the exact opposite. I believe in concentrated conviction. When I invest in a company, I’m not just buying a piece of paper. I’m partnering with the founders. I’m committing to helping them succeed, and that means being there for them when they need it most. Follow-on investing isn’t just about putting more money in; it’s about doubling down on your belief in the team and their vision.
My Follow-On Framework: The Four Pillars
I’ve developed a simple framework that guides all of our follow-on investment decisions. It’s not some complex algorithm or a 100-page investment thesis. It’s a set of four core principles that have served me well over the years.
1. Performance Against Milestones
This is the most straightforward pillar. When we make an initial investment, we work with the founders to set clear, measurable milestones for the next 12-18 months. These aren’t just vanity metrics like website traffic or app downloads. We focus on the things that really matter: revenue growth, customer acquisition cost, churn rate, and product engagement.
I have a simple spreadsheet that I use to track each company’s progress against these milestones. It’s nothing fancy, just a Google Sheet with a few key charts. But it gives me a quick, at-a-glance view of how each company is performing. If a company is consistently hitting or exceeding its milestones, that’s a strong signal that they’re on the right track and that a follow-on investment is warranted.
For example, one of our portfolio companies, a SaaS business in the developer tools space, had a goal of reaching $1 million in annual recurring revenue (ARR) within 18 months. They hit that in 12. They weren’t just meeting expectations; they were shattering them. When they came to us for their Series A, it was an easy decision to lead the round.
But it's not always about the home runs. I once backed a company that was struggling to find product-market fit. Their initial product wasn't getting the traction we had hoped for. But the founders were relentless. They talked to customers, they iterated on the product, and they didn't give up. We set a series of small, achievable milestones for them: get 10 paying customers, reduce churn by 5%, increase the free-to-paid conversion rate. They hit every single one. It wasn't explosive growth, but it was progress. It showed us that they were learning, adapting, and moving in the right direction. We decided to do a small follow-on round to give them more time to figure things out. Today, they're one of the fastest-growing companies in our portfolio.
2. Founder-Market Fit
This one is a bit more subjective, but it’s just as important. I’m looking for founders who are obsessed with their market. They’re not just building a product; they’re solving a problem that they’ve experienced firsthand. They understand the nuances of their industry, they know their customers inside and out, and they have a clear vision for the future.
I can usually tell within the first few meetings whether a founder has that fire in their belly. They’re the ones who are constantly learning, constantly iterating, and constantly pushing the boundaries of what’s possible. They’re the ones who will run through walls to make their vision a reality.
One of the best examples of this is a founder I backed a few years ago. He was building a platform for freelance writers, and he had been a freelance writer himself for over a decade. He knew the pain points, the frustrations, and the opportunities in that market better than anyone. He wasn’t just building a product; he was building a solution for his own community. That’s the kind of founder-market fit that you can’t fake.
On the flip side, I once met with a team that had a brilliant idea for a new social media app. They were smart, they were charismatic, and they had a great pitch. But as I dug deeper, I realized that they didn't actually use social media themselves. They were building a product for a market they didn't understand. They were chasing a trend, not solving a problem. I passed on the investment, and the company shut down a year later.
3. The Pro-Rata Power Play
Your pro-rata right is your right to maintain your ownership percentage in a company by investing in subsequent funding rounds. This is one of the most powerful tools in a VC’s arsenal, and it’s amazing how many investors don’t use it effectively.
When a company is doing well, everyone wants in. The big-name funds start circling, and the valuation starts to climb. If you don’t exercise your pro-rata rights, you’re going to get diluted. Your 10% stake in the company could quickly become 5%, or 2%, or even less. You’re leaving money on the table.
Let's say you invested $500,000 in a company's seed round at a $5 million valuation, giving you a 10% stake. The company does well and goes on to raise a Series A at a $20 million valuation. If you don't exercise your pro-rata rights, your 10% stake is now worth $2 million. Not bad, right? But if you had exercised your pro-rata right and invested another $1 million, you would have maintained your 10% stake, which would now be worth $4 million. That's a $2 million difference. That's the power of pro-rata.
I always, always protect our pro-rata. In fact, I often try to take more than our pro-rata, what’s known as a “super pro-rata.” This sends a strong signal to the market that we have deep conviction in the company, and it allows us to increase our ownership in our best-performing assets. It’s a simple concept, but it’s one that has a massive impact on our fund’s returns.
4. The Syndicate Advantage
I’m a big believer in the power of the syndicate. I’ve built a network of over 200 angel investors, many of whom are successful founders and operators in their own right. When we’re considering a follow-on investment, I’ll often syndicate the deal to this network.
This has a few key advantages. First, it allows us to write a larger check than we could on our own. This gives the company more runway and a stronger balance sheet. Second, it brings more smart people around the table. Our syndicate partners often have deep expertise in a particular industry or function, and they can provide invaluable advice and connections to the founders. Third, it de-risks the investment for our fund. By sharing the investment with our syndicate, we’re spreading the risk and increasing our chances of success.
I remember one time we were doing a follow-on round for a company in the cybersecurity space. I'm not a cybersecurity expert, but I knew someone in my syndicate who was. I sent him the deal, and he immediately saw the potential. He not only invested, but he also introduced the founders to a key customer that ended up being their biggest contract. That's the kind of value that a syndicate can bring to the table.
I use a simple email template to share syndicate deals with my network. It includes a brief overview of the company, the investment thesis, and the key terms of the deal. It’s a low-friction way to get a lot of smart people excited about a company, and it’s been a key part of our success.
The Tools of the Trade
I’m not a big believer in expensive, complicated software. I’ve found that a few simple tools are all I need to manage our follow-on investing process.
- Google Sheets: As I mentioned, I use a simple Google Sheet to track each company’s progress against their milestones. It’s easy to use, it’s collaborative, and it gives me a quick, at-a-glance view of our portfolio. I'd rather have a simple tool that I actually use than a complex one that I don't.
- Notion: I use Notion to keep all of my notes on each company. I have a page for each company with my investment memo, my notes from board meetings, and any other relevant information. It’s my personal CRM for our portfolio. It's flexible, it's searchable, and it's always with me on my phone.
- DocuSign: When it’s time to sign the paperwork for a follow-on investment, I use DocuSign. It’s fast, it’s secure, and it’s legally binding. It’s a no-brainer. I've closed deals in the back of an Uber thanks to DocuSign.
That’s it. That’s the entire stack. I don’t have a team of data scientists building complex models. I don’t have a proprietary software platform that costs a fortune. I have a few simple tools and a disciplined process. That’s all it takes.
The Bottom Line
Follow-on investing isn’t the sexiest part of venture capital, but it’s the most important. It’s the work that separates the good funds from the great ones. It’s about having conviction, being disciplined, and being a true partner to the founders you back.
If you’re a founder, make sure you’re working with investors who have a clear follow-on strategy. Ask them about their process. Ask them about their track record. And if you’re an investor, don’t be afraid to double down on your winners. It’s the best way to build a world-class fund and a lasting legacy. It's not just about making money; it's about building something that matters. It's about being there for the founders who are crazy enough to think they can change the world. And if you're lucky, you get to change the world with them.
Frequently Asked Questions
What tools do I need to get started?
Start with the basics. You don't need expensive software or fancy tools. A spreadsheet, a note-taking app, and direct access to your customers will get you further than any enterprise platform. Add tools only when you hit a specific bottleneck.
Do I need technical skills to use follow-on investing to manage our $1 billion fund?
Not necessarily. While technical understanding helps, the most important skills are clear thinking and the ability to break problems into smaller pieces. Many successful founders I've invested in started with zero technical background and either learned enough to be dangerous or found the right technical partner.
What are the most common mistakes when using follow-on investing to manage our $1 billion fund?
The biggest mistake I see is overcomplicating things early on. Start with the simplest version that works, get real feedback, and iterate from there. Another common trap is copying what worked for someone else without understanding the context behind their decisions.
How do I measure success with this approach?
Pick one or two metrics that directly tie to your goal and track them weekly. Vanity metrics like page views or follower counts rarely matter. Focus on metrics that reflect real engagement or revenue impact.