drip feed

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 Commentary

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 Links

Dollar-Cost Averaging Pays
DCA: It Gets You in at the Bottom

See also: Average Down, Average Up, Dollar-Cost Averaging - DCA, Seed Capital, Venture Capital, Venture Capitalist, Vulture Capitalist

Also spelled: drip feeds, drip feeding

drip feed n.

1. Administration of blood, plasma, saline, or sugar solutions, usually intravenously, a drop at a time.

2. The device or tubes by which such a substance is administered.

3. The substance administered in this manner.