Drip Feed

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. Drip Marketing

    A strategy employed by many direct marketers where a constant ...
  2. Treasury DRIP

    A dividend reinvestment plan that uses dividends to purchase ...
  3. Venture Capital

    Money provided by investors to startup firms and small businesses ...
  4. Dividend Reinvestment Plan - DRIP

    A plan offered by a corporation that allows investors to reinvest ...
  5. Drip Pricing

    A pricing technique in which only part of a product or service’s ...
  6. Startup Capital

    Startup capital refers to the money that is required to start ...
Related Articles
  1. Fundamental Analysis

    The Perks Of Dividend Reinvestment Plans

    These plans offer shareholders a way to directly invest in some of the top companies without the commissions.
  2. Investing Basics

    6 Reasons Why Dividends Should Be Reinvested

    Learn about the advantages of dividend reinvestment programs and how they may benefit longer-term investors who want to build a position in a company.
  3. Investing Basics

    How Does a Dividend Reinvestment Plan Work?

    A dividend reinvestment plan allows investors to use their dividends to purchase more shares of the corporation’s stock, rather than receiving payment.
  4. Investing

    5 Questions to Ask Before Investing in a Startup

    Investing in start-ups can be profitable but investors need to do their homework before diving in.
  5. Investing

    Venture Capital

    Learn how startup firms get capital from wealthy investors, investment banks and other financial institutions.
  6. Investing

    Declining Venture Capital Offset by Digital Economy

    While the amount of venture capital may be on the decline this new trend certainly does not seem to present a problem for tech startups in today's growing digital economy.
  7. Savings

    529 Plan Contribution Limits in 2016

    Learn about the contribution and account balance limits on 529 plan accounts and discover how these contribution limits differ in each state.
  8. Retirement

    401(k) Contribution Limits in 2016

    Find out what the contribution limits are for 401(k) retirement savings plans in 2016, including individual, employer and aggregate limits.
  9. Investing

    A Look into the Exciting World of Venture Capital

    We look into the world of venture capital, where deep-pocketed investors gamble on funding the next big startup (or the next big flop).
  10. Retirement

    It’s Never Too Late to Contribute to Your 401(k)

    Find out why it is never the wrong time to start contributing to a 401(k), even in your late 30s, 40s or 50s; discover how to maximize your savings at any age.
RELATED FAQS
  1. What is a DRIP?

    The word "DRIP" is an acronym for "dividend reinvestment plan", but "DRIP" also happens to describe the way the plan works. ... Read Answer >>
  2. What effect does a company's dividend reinvestment plan have on its stock price? ...

    When a dividend is received, an investor has two options: to keep the proceeds in a bank account or reinvest them. For the ... Read Answer >>
  3. How is venture capital different from other kinds of equity financing?

    Learn how venture capital equity financing differs from other funding options and what companies need to be aware of prior ... Read Answer >>
  4. Where does venture capital come from?

    Obtaining funding from venture capitalists is the way to go for those who have great ideas with potential for becoming lucrative ... Read Answer >>
  5. What is the best way to receive a lump sum settlement?

    My ex owes me monthly alimony but he is not paying. I was wondering if I can ask for a lump sum and pay little or no taxes? ... Read Answer >>
  6. What is the difference between private equity and venture capital?

    Learn the differences between private equity and venture capital, especially in terms of how these types of firms invest ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center