It depends on the size of the firm.

The bigger the firm, the bigger a negative signal it is.

Small VC funds (<$100m, and certainly, <$50m) often have limited capacity to do follow-on rounds. Even these small funds often will want to put a little money into later rounds, but sometimes, only a token amount if they are “tapped out”. [E.g., for me, once a start-up is valued > $100m or so, it’s going to be structurally impossible for me to do pro-rata in almost every case]

Big funds though — certainly funds of $1b or more in size, or probably even $300m or more in size — it’s 100% a negative signal. They do “pro rata” or at reflexively even in their Good But Not Great start-ups at least until the pre-nicorn rounds.

So if a Big VC doesn’t invest at all in the next round, at it’s not a unicorn round or close to it, it’s either:

  • a sign the Big VC doesn’t believe in the start-up.
  • Or less commonly. But sometimes. The founders don’t believe in the Big VC anymore. and asked them not to invest.
  • Or occasionally. The VCs will all agree to waive their pro-rata rights to let another investor in that the company really wants to have in. This is less common unless it’s a smaller “top off” round.

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