Another reason I may not follow on is if the founders ignore my advice in an area where I have a reasonable level of expertise - that’s not an impressive strategy. In that instance, I may just choose to step back and let my investment ride.
How the founders run their board can be either a red flag or a signal that they know what they’re doing. An early stage business doesn’t need monthly meetings or a big board that knows how to scale - it needs the founders and perhaps a couple of other people who can get the ball rolling. If the founders have people on their board who are invested in the success of their business, can give honest feedback and understand about corporate governance then it’s a good signal. It means they’re thinking about how their business looks to an external party. On the other hand, if the board is stacked with the founder’s mates than that’s a big red flag.
Whether or not other investors choose to follow on can be both a signal and a red flag. If other investors aren't following on that can have pretty dire consequences for the business and the ability to attract new capital, so I’ll always take that into account.
Before making my decision whether to follow on or not, I look for these signals and red flags. If I see my initial investment is going well, the company is getting traction in the market and the founding team operates well, I’m generally happy to follow on.
Danny Gorog is an Angel Investor.
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