How I Decide to Double Down

Many startups I invested in are coming back and asking for more. So how do I decide to double down — or cut my losses?

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Here’s how I approach follow-on funding:


I want to see startups triple revenue year over year after I invest. This level of growth shows they’re finding product market fit.

The best companies grow fast. Meanwhile, those with weak products or a poor sales strategy struggle to sign new customers.

But growth has to be efficient. I like to see a startup burning no more than $2-3 to add $1 of new Annual Recurring Revenue (ARR).

New Investors

Are any new investors joining this round? Or are existing investors just hoping to save a failing company?

If the founder could not find a new investor who wanted to make a bet on the business, that’s a strong negative signal.


This fundraise has to give the company enough money to ride out today’s tough market. I like to see startups raise enough cash for 24 months or more.

If the founder is only raising a small round to survive another couple of months, it’s likely a bridge to nowhere.

The Founder

Has the founder shown good leadership in these tough times? Has he taken responsibility for mistakes and kept investors updated?

If so, that makes me a lot more likely to open the checkbook.

How Much to Invest

I recently re-invested in a startup I first backed in 2021. They increased revenue by 5x in a year and brought in a new lead at a higher valuation.

Re-investing was a pretty easy choice. But how much should I put in?

I Invested about 2.5 times as much as my initial check. If the company keeps performing like this, I want to do about the same in their next round.

In all, I like to invest 4-5 times as much money in follow-on as I do in the first investment.

This lets me concentrate capital in winners. I also avoid major exposure to companies that are struggling.

The Human Factor

It’s very hard to say no to a hard working founder who’s trying his best.

Unfortunately, it’s also our job. If we don’t want to make tough decisions, we shouldn’t be in this business.

Even if I can’t re-invest, I’m happy to support the founder in other ways. I can introduce them to potential employees and business partners, provide advice, etc.

Done right, follow-on funding is a super power.

It increases my exposure to the best companies while minimizing my exposure to struggling ones. It gets money to the companies most likely to change the world.

How do you think about follow-on investments? Leave a comment and let me know!

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