What is a follow-on investment?

A follow-on investment refers to a subsequent investment made after an initial equity offering, typically in the context of public markets. When a company has already gone public through an initial public offering (IPO), it may issue additional shares at a later date to raise more capital. This is often undertaken to fund further growth, pay down debt, or finance acquisitions.

The nature of a follow-on investment is that it builds on the initial capital raised during the IPO, allowing both the company and investors to partake in continued opportunities for growth and value creation. It is important because it demonstrates the company’s ability to access the public markets for additional funding, which can be viewed as a signal of market confidence.

In contrast, other options describe different financial concepts that do not accurately capture the essence of a follow-on investment. For example, a replacement of an original investment pertains more to scenarios like buyouts or recapitalizations rather than the context of public offerings. A primary public offering specifically refers to the original offering of shares, while a strategic acquisition involves purchasing another company, which is entirely distinct from raising capital through the sale of additional equity shares in the market.