Investors who invest in the company for the second, third, etc. times (the so-called follow-on investments) are more generous.
The median transaction amount with the participation of current insider investors is 2.5 times higher than the transaction amount with new investors: $14.1 million
versus $5.5 million.
Why?
It's because insiders are more familiar with the company's metrics, and they don't need to re-conduct due diligence. Sometimes — especially in the late stages — insiders do not allow newcomers to acquire a significant stake in the company by buying shares in the growth of which they are confident. At the same time, they thereby fuel the company financially,
bringing it closer to the IPO.
Follow-on investments from reputable funds are considered to be their faith in the company's success.
For smaller investors, follow-on investments of big players — a signal to consider buying a stake in the company.
