Drip Feed

AAA

DEFINITION of 'Drip Feed'

1. The process of investing on an ongoing basis in a small but growing firm over a period of time. Essentially, a drip feed results in a startup company receiving capital contributions as the need for capital arises, rather than getting a lump sum capital contribution at the company's inception.

2. The process of retail investors contributing small amounts of their savings to their investment pool on a periodic basis, such as $200/month, for example.

BREAKING DOWN 'Drip Feed'

1. With this type of financing arrangement, startup firms operate with very little surplus capital; their financing needs are only contributed to by venture capitalists as the need for capital arises.

2. Individual investors can benefit from this type of strategy: it reduces the risk of entering positions in overpriced securities, since the investments are spread out. This technique also moderately smooths market fluctuations for the investor, since he or she benefits from dollar-cost averaging (a fixed dollar contribution amount each month, for example, will result in more equity shares being purchased at low market prices than at high prices). Of course, as a trade-off for the safety of this added smoothness, investors sacrifice the potentially higher returns they might have seen if they had simply made a lump sum investment at low market prices.

RELATED TERMS
  1. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  2. Dollar-Cost Averaging - DCA

    The technique of buying a fixed dollar amount of a particular ...
  3. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  4. Vulture Capitalist

    1. A slang word for a venture capitalist who deprives an inventor ...
  5. Average Up

    The process of buying additional shares at higher prices. This ...
  6. Average Down

    The process of buying additional shares in a company at lower ...
Related Articles
  1. Insurance

    Take Advantage Of Dollar-Cost Averaging

    We explain how dollar-cost averaging offers protection and opportunity in a sinking market.
  2. Retirement

    Dollar-Cost Averaging Pays

    Get the most out of your mutual fund by using this simple but powerful strategy.
  3. Investing

    Fight The Good Dollar-Cost Averaging Fight

    Stop sitting on the fence and learn both sides of this hot debate.
  4. Entrepreneurship

    World's Top 10 Serial Entrepreneurs

    There are entrepreneurs, and then there are serial entrepreneurs. Investopedia takes a look at who they are and how they keep making it big.
  5. Investing

    The 8 Best Business and Finance T.V. Shows

    With so many talking heads to choose from, which is the right show for your business and money matter needs? We review the best shows on now.
  6. Active Trading Fundamentals

    The Biggest Private Equity Firms in San Francisco

    Learn about some of the larger private equity firms with a presence in San Francisco, including KKR, the Blackstone Group and Warburg Pincus.
  7. Active Trading Fundamentals

    The Companies of Peter Theil's Founders Fund

    Learn about the major public companies that Peter Thiel has invested in and companies that are on the verge of going public at multibillion-dollar valuations.
  8. Active Trading Fundamentals

    The Biggest Private Equity Firms in Los Angeles

    Learn why Los Angeles is a thriving market for private equity, and identify the five largest private equity firms operating in the city.
  9. Entrepreneurship

    What Does Bootstrap Mean?

    The term bootstrap refers to launching and building a business with little capital and no funding from outside sources.
  10. Investing

    The Rise of Corporate Venture Capital

    After the success of Google Ventures, corporate venture capital is an increasingly popular diversification and hedging tool for many large corporations.
RELATED FAQS
  1. How do you find the break-even point using a payback period?

    It does not make sense to find the breakeven point using a company's payback period. A company's payback period is concerned ... Read Full Answer >>
  2. What does residual value represent in a private equity investment?

    It is common to see a private equity investment's net asset value, or NAV, referred to as its residual value, since it represents ... Read Full Answer >>
  3. What is considered a reasonable interest rate for a syndicated loan?

    A 2010 survey of syndicated loans found an average interest rate of 7.9%. However, the majority of syndicated loans are floating ... Read Full Answer >>
  4. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>
  5. How strong are the barriers to entry for new companies in the telecommunications ...

    The barriers to entry for new companies in the telecommunications sector are very strong and primarily revolve around the ... Read Full Answer >>
  6. How much, if any, influence do non-controlling interest shareholders have?

    Non-controlling interest shareholders do not typically have much influence. The level of influence can vary, however, depending ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!