Big Funds and Tiny Cheques: A Caution for Founders

In the midst of a thriving bull market, even the largest funds start to show unpredictable behaviour. Trends only become apparent later when everything is flourishing.

A notable trend is the frequency with which major funds offer very small cheques. Founders observe this and often feel reassured, thinking that support from a large fund indicates their idea must be remarkable. However, in many cases, these decisions stem from a calculated risk influenced by fear of missing out (FOMO).

The AI Wave and the Bigger Picture

The surge in AI clearly illustrates this phenomenon. There is a rush to be connected to the next OpenAI, Anthropic, or AI infrastructure enterprise. Large funds subtly make small investments across numerous startups to gain visibility, secure pro-rata rights, and eventually enjoy future acclaim. If one or two of these investments thrive, they will proceed further. If not, they simply move on.

This behaviour is not exclusive to AI but reflects a broader trend observed in every bull market. Continuous up rounds create the illusion that investing at an early stage is simple, leading growth and late-stage funds to venture into earlier rounds, initiating seed and Series A programmes to capture additional advantages.

Funds with billion-dollar resources frequently conduct early-stage programmes alongside their growth initiatives. When the investment cycle shifts, weak fundamentals come to light, momentum pricing stagnates, rounds are repriced, and down rounds trigger dilution and challenging recapitalisation situations that many founders are unprepared for.

The pattern is predictable: during a boom, investors shift downstream; during a bust, valuations reset and discipline is enforced. Up rounds do not guarantee a sustainable business.

Big Funds and the Small Cheque Strategy

Major funds have capital to deploy. They raise substantial amounts from limited partners (LPs) during bullish times, and those LPs expect to see utilisation of those funds. Finding late-stage deals proves difficult and costly, prompting funds to move downstream. For a fund worth $500 million, issuing five or fifty lakh cheques in pre-seed rounds is merely an inexpensive lottery ticket. If successful, it is a win; if not, no one notices.

Funds pursue the next trend, be it crypto in 2021, Web3 in 2022, or AI from 2023 to 2025. Small cheques allow them to demonstrate activity to LPs and maintain an appearance of involvement. Behind the curtain, few are obligated to support founders. Their name on a startup’s cap table may seem impressive but often equates to little more than a name and a cheque.

Hidden Risks for Founders

Receiving an early cheque from a significant fund can feel like a victory. However, future investors will look at who is represented on the cap table. If that fund does not lead or continue its support, it quietly signals a lack of confidence that may prompt hesitation from other investors. In venture capital discussions, this is termed signalling risk. What initially appears to be a success can transform discreetly into a warning sign. Investors who invest with genuine conviction typically steer clear of rounds with lukewarm participation.

A small cheque might not weigh much for a major fund, but for a startup, it can signify crucial support. While funds focus on diversifying risk, founders are focused on their survival. They need investors who actively engage, open doors, and provide genuine direction.

When challenges arise, that initial cheque seldom leads to ongoing support. Those investors who remain engaged are often smaller funds or individuals who genuinely believe in the venture.

In 2022, numerous fintech founders in India experienced this situation first-hand. Major funds that initially participated with small cheques frequently did not follow up in tougher times, leaving founders reliant on smaller funds and individuals who remained committed.

When Markets Turn

When market conditions change, confidence evaporates. Large funds that wrote small cheques quickly shift their focus to pursue later-stage deals. Founders then find themselves having to justify the absence of their lead investors. This pattern has recurred in crypto, SaaS, Web3, and now in artificial intelligence.

In 2022, more than half of the crypto startups supported by significant funds received no follow-on investments. The trend is consistent: large funds enter early, issue small cheques, ride the wave, and depart when it recedes.

Founders require support from true believers rather than fair-weather investors. It is vital to look beyond the name and inquire whether the fund will be there during difficult periods.

In the realm of artificial intelligence, many funds wrote small cheques to every startup labelled as AI. In India, over forty such enterprises secured modest pre-seed rounds in 2024, yet only a few benefited from ongoing backing. Most of this funding was passive. Genuine company development necessitates belief, not mere hype.

Conviction Beats Brand Names

Bull markets boost confidence. Bear markets require discipline. Conviction cannot be borrowed. If a founder accepts a small cheque from a large fund, it should be done with full understanding. While it may be an option for the fund, for the founder, it impacts ownership, signalling, and survival—hence, it is essential for founders to be cautious.

The genuine shortcut to securing the next round is not a prominent name but early investors who genuinely believe, provide significant help, and remain committed through various cycles.

Founders have often accepted $500,000 from $500 million funds, under the impression that it would expedite their Series A. In truth, it rarely does.

True believers drive growth. During every bull market, large funds issue small cheques. In every bear market, it is the dedicated supporters who build enduring companies.

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