Lesson 04

The winners were bought more than once

The largest positions in this section were accumulated across rounds, not established in a single cheque — which is a capital planning decision made years before the opportunity appears.

The pattern

The Lowercase position in Twitter reached a reported 4% of the company. No seed cheque from an $8.4m fund establishes 4% of a company that size. It was built — across rounds, and through secondary purchases when the opportunity arose.

This is the least discussed mechanic in angel investing and one of the most consequential. Writing a first cheque is an act of judgement under near-total uncertainty. Writing the third cheque into the same company four years later is an act of judgement with four years of observed performance behind it, and it is a far better bet.

The reason most angels never do it is not disbelief. It is that they deployed their entire allocation into first cheques, so when the company that was working raised again, there was nothing left to put in.

The decision that determines whether you can follow on is therefore made before your first investment, when you decide what proportion of the allocation you are not going to spend.

For your own cheque

What an angel takes from this

Reserve 30% to 50% of your total allocation before making a single investment. Money that is not reserved will be spent, and it will be spent on new companies you know less about.
Negotiate pro-rata rights at entry, in a side letter if the instrument does not include them. The standard post-money SAFE does not, and retrofitting the right afterwards is very difficult.
Partial pro-rata counts. The right is a maximum, not an obligation, and half your allocation slows dilution at half the cost — which is what makes following on possible once round sizes outgrow your balance sheet.
Follow on into the top third of your portfolio only. Reserve capital is scarce and a follow-on into a merely fine company is capital denied to one that is genuinely working.

Checked, not remembered

Sources

Every figure on this page is traceable to published reporting. Where credible sources disagree we say so above rather than picking the most quotable number, and we do not state what a stake is “worth today” — that moves with the share price and is stale the moment it is written.

WikipediaLowercase Capitalen.wikipedia.org ↗ForbesChris Sacca profileforbes.com ↗

The mechanics

Terms this story turns on

Pro-rata rightsThe right, but not the obligation, to invest enough in future rounds to maintain your existing percentage of the company.Side letterA short separate agreement giving a specific investor rights that are not in the main round documents — most commonly pro-rata, information rights or a board observer seat.Secondary saleThe sale of existing shares by a shareholder to a new buyer, as distinct from the company issuing new shares — the main route to liquidity before a company exits.Pay-to-playA provision that strips investors of their preferred rights — usually by converting their shares to ordinary — if they decline to invest their pro-rata share in a future round.