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.

INVESTOPEDIA EXPLAINS '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. Dollar-Cost Averaging - DCA

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

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

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

    The process of buying additional shares at higher prices. This ...
  5. Venture Capitalist

    An investor who either provides capital to startup ventures or ...
  6. Average Down

    The process of buying additional shares in a company at lower ...
RELATED FAQS
  1. What is the relationship between research and development and innovation?

    Although it's possible to achieve innovation without research and development and it's possible to conduct research and development ... Read Full Answer >>
  2. What are the pros and cons of downround financing?

    Down round financing is often reflected in very negative terminology. In some cases, it can be very bad for existing shareholders. ... Read Full Answer >>
  3. What type of companies use downround financing?

    Down round financing involves selling stock to new investors at a lower price than the investors paid. Shares for the company ... Read Full Answer >>
  4. What are the pros and cons of holding a non-controlling interest in a company?

    Most investors hold a non-controlling interest – also known as a minority interest – of the companies in which they own shares. ... Read Full Answer >>
  5. How do changes in capital stock illustrate the overall health of a company?

    Changes in capital stock normally illustrate that the overall health of a company is strong, and that it is seeking to raise ... Read Full Answer >>
  6. What type of funding options are available to a private company?

    Similar to public companies, private companies also need funding for various reasons. A business typically needs the greatest ... Read Full Answer >>
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. Professionals

    Top Strategies to Attract Elite Clients

    Here's how to think outside of the box when it comes to attracting a high-net-worth client base.
  5. Entrepreneurship

    Fed Raising Rates Affects Startup Funding

    With interest rates having nowhere else to go but up, the Fed’s impending interest rate raise will likely begin to reverse the flow of startup funding.
  6. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  7. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  8. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.
  9. Personal Finance

    5 Assets Only The Ultra Rich Can Afford

    Yacht? Private jet? Not that unusual. If you’re rolling in the big bucks, you can buy something much more interesting.
  10. Investing Basics

    Diversification and Startup Investing

    Startup investments, considered a subset of venture capital, are subject to the same principles of diversification and portfolio management as publicly traded companies.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
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!