The arithmetic
What pro-rata is worth
Putting a number on the right to keep investing — how much following on actually preserves, and what it costs to do it.
Pro-rata rights are described everywhere as the most valuable thing an angel can negotiate. This chapter puts arithmetic behind the claim, because the value is real and it is not unlimited, and the cost of exercising it rises steeply.
The mechanism is simple: exercising pro-rata in every round holds your percentage constant instead of letting it decay. The question is what that is worth against what it costs, and the answer depends heavily on how many rounds the company raises and how fast the price rises.
The honest conclusion is that following on for one or two rounds is usually excellent and following on forever is usually impossible. Knowing where to stop is the practical skill.
The cost of holding your position
Maintaining a percentage means investing proportionally in every round, and because valuations rise, each round costs more than the last. A position that cost £25,000 to establish can cost several hundred thousand to maintain through Series C.
The arithmetic below shows why most angels stop after one or two follow-ons: not because it stops being a good investment, but because the cheque size outgrows the allocation. This is a constraint about your balance sheet rather than about the company.
The partial version is available and underused. Investing half your pro-rata slows the decay without requiring the full cheque, and it is almost always permitted — the right is a maximum, not an obligation.
| Round | Post-money | Cost to maintain 2.0% | Cumulative invested |
|---|---|---|---|
| Seed entry | £1.25m | £25,000 (initial) | £25,000 |
| Series A | £20m | £80,000 | £105,000 |
| Series B | £60m | £240,000 | £345,000 |
| Series C | £150m | £600,000 | £945,000 |
Illustrative. Assumes each round sells 20% of the company at the stated post-money valuation.
What it returns
Take the same company exiting at £600m. An angel who never followed on is diluted through all four rounds to roughly 0.85%, and receives about £5.1m on a £25,000 investment — a 204× return.
An angel who followed on fully through Series B still holds 2.0% at that point, and is then diluted by Series C and D to about 1.36%. They receive roughly £8.2m, having invested £345,000 in total. That is a 24× return on a much larger sum — and £3.1m more in absolute money.
Both are excellent, and they answer different questions. The multiple is higher without follow-on; the absolute return is higher with it. Which matters depends on whether your constraint is capital or opportunities — and for most angels, having the capital deployed in a proven winner is worth more than a higher multiple on a smaller sum.
Where to stop
A reasonable default is to follow on through Series A and Series B, and to stop after that. By Series B the company is usually well funded, the price reflects substantial de-risking, and the cheque required has grown beyond what most angel allocations can support without distorting the portfolio.
The other stopping rule is relative: follow on only where the company is in the top third of your portfolio on performance. Reserve capital is scarce, and a follow-on into a company that is merely fine is capital not available for one that is genuinely working.
The rule that matters most is to decide in advance. Follow-on decisions taken under time pressure, in the middle of a round, with a founder you like, are the ones most likely to be wrong.
In short
What to take away
- Following on preserves absolute return, not multiple — both are legitimate goals and they differ.
- Partial pro-rata is allowed and underused. The right is a maximum, not an obligation.
- Default to following through Series A and B, then stopping.
- Decide the rule before the round, not during it.
From the decoder