Angel Investing: To Follow-on Or Not?

By Wayne Mulligan, on Friday, November 22, 2013

“Double down!” my friend Walter screamed in my ear. “DOUBLE DOWN!

It was my 18th birthday, and my first time playing blackjack in a casino.

I grew up in New York City, where, among my group of friends, the right of passage when we turned 18 was to make a gambling pilgrimage to Atlantic City, New Jersey.

I found myself stuffed into an ill-fitting brown suit, seated at a low-stakes table. I had just drawn a 5 and a 6, giving me a total of 11. (For those who don’t play blackjack, the objective is to draw cards that, when added up, equal 21 – without going over 21).

Unbeknownst to me, when your first two cards total 11, you’re allowed to increase the size of your bet and draw a final card. It’s called “doubling down.” Since the highest card value is 10, there’s no chance of going over 21.

And since your odds of winning have increased, it makes sense to increase your bet.

As it turns out, there’s a similar situation that occurs in the world of early-stage investing.

Let me explain…

Invest Like A VC

Let’s say a venture capitalist, or “VC” for short, invests in a startup’s first round of financing.

Sometime down the road, the startup is doing well. It decides to raise more capital in order to support its growth.

The VC now has two options:

1.Sit out this second round of funding

2.Participate in the second round (i.e. “double down”)

If the VC chooses Option 1 and sits it out, their ownership in the company will be decreased (a concept known as “dilution” which you can read more about in our 10 Crowd Commandments Report »).

If they choose Option 2, they’ll have to write another check – but they’ll maintain their ownership stake in what looks like a successful company. Essentially, they’re “doubling down” on the company and investing even more. This is their way of continuing to back what now looks like a less risky opportunity.

Unfortunately, smaller investors don’t generally have this opportunity. VCs usually insist on funding these “follow-on” rounds themselves.

But as we discovered this week, there’s one equity crowdfunding platform out there that’s making “doubling down” a reality for the average Joe.

In fact, we had a closed-door meeting with the CEO of this particular platform – and he let us in on what we think could mean big returns for small investors.

The “Double Down” Platform

The platform I’m referring to is OurCrowd »Their CEO, Jon Medved, came to visit us in our offices this week. Here we are. (FYI: I’m the one with the shiny head, and my co-founder, Matt Milner, is on the right.  Our guest, Jon, is in the middle).


Jon presented his vision about the future of crowdfunding, he pointed to a company that had just completed a round of funding on OurCrowd: Parko.

Jon explained to us that this wasn’t Parko’s first time raising funds on OurCrowd; Parko had raised a first round several months earlier. This was their second round; their follow-on round.

We found this fascinating. OurCrowd is doing something we haven’t seen elsewhere: they’re getting involved and staying involved with their companies.

Not only do they put their own money into these startups – and not only do they take an active role in their development – but when one of their companies becomes successful and needs additional growth capital, OurCrowd brings it back to their funding platform to raise the necessary funds.

That means existing investors can continue to back what now looks like a less risky opportunity; they can take another bite of the apple.

How To Play It

Similar to blackjack, just because you can double down, doesn’t mean you have to.  Plenty of angel investors earn attractive returns without participating in follow-on rounds of financing.

But if you’re interested in using the follow-on funding strategy – and plenty of professional investors swear by it – OurCrowd is a good place to start.

In fact, there’s a company raising money there right now that we’ve recently written about: MST. This is MST’s first fundraising round on OurCrowd.

Who knows? If MST does well and later decides it needs growth capital, maybe you’ll have the chance to invest again – in a future round on OurCrowd!

If you’re interested, you can learn more about MST here »

Best Regards,
Wayne Mulligan
Wayne Mulligan


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Tags: Equity Crowdfunding Crowdfunding Angel Investing Ourcrowd Jon Medved Follow-on Investing Early-stage Early-stage Investing

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