When a startup is launched, it often generates little or no revenue. The founder therefore needs to raise capital to develop the product, build the team, and test the market. This first round is generally financed by private investors, business angels, or venture capital funds.

At this stage, risk is high: many projects will not succeed, some will progress slowly, and only a few will generate significant value.

After several months or years, the startup may require additional capital to:

· accelerate its growth,
· finance further development, or
· stabilise its financial situation.

This second round is often more structuring than the first. It involves a new valuation and may bring in new investors. It is also the moment when existing investors must decide whether they wish to reinvest.

This decision is closely linked to the presence of preferential rights, which give existing shareholders priority access to the new round.

Between two funding rounds, a company’s valuation can evolve significantly. This evolution is a key indicator when deciding whether reinvestment is appropriate.

The pre-money valuation refers to the value of the company before new funds are injected. It depends in particular on commercial traction, growth prospects, the strength of the team, and market positioning.

The post-money valuation corresponds to the pre-money valuation plus the amount of the new capital increase. It determines the percentage of the company allocated to new investors and, consequently, the dilution of existing shareholders.

For example, if a company has a pre-money valuation of €1,000,000 and raises €500,000, the post-money valuation becomes €1,500,000. The new investor therefore acquires 33% of the company, while existing shareholders are diluted accordingly.

In startup investing, most of a portfolio’s value is typically created by a minority of companies. Professional venture capital investors take this into account and do not deploy all their capital upfront. Instead, they deliberately reserve capital to reinvest in companies that demonstrate strong execution and potential.

This strategy allows investors to:

· increase exposure to top-performing companies,
· avoid allocating additional capital to underperforming ones,
· improve overall portfolio performance by concentrating investments on the most promising projects.

Preferential rights are a key enabler of this approach.

A preferential right, also known as a pre-emption right, is a right established by law that grants existing investors priority to participate in a new funding round. It allows them — if they so choose — to maintain their ownership stake in the company and limit dilution.

It is not an obligation, but a strategic option:

· to reinvest when the company continues to execute and create value, or
· to choose not to reinvest when performance no longer justifies further capital allocation.

Beyond dilution protection, preferential rights play a central role in active portfolio management.

Avoiding dilution is a direct consequence of preferential rights, but it is not their sole — or even primary — purpose. Their real value lies in enabling investors to manage their portfolios actively, in a way similar to professional venture capital funds:

· reinforcing winning positions,
· reducing exposure to weaker projects,
· adjusting capital allocation over time based on performance and risk.

This disciplined approach is essential to building a resilient and high-performing startup investment portfolio.

Preferential rights are a cornerstone of long-term startup investing. By giving investors the ability to selectively reinvest in companies that confirm their potential — and to refrain from doing so when they do not — they help transform a one-off investment into a coherent, performance-driven reinvestment strategy.

Understanding how funding rounds, valuation dynamics and preferential rights interact is key to maximising long-term returns in startup investing.