The investment analysis, due diligence and selection processes tend to be long and expensive.
These are the reasons why many investors try to avoid those processes by following investors who are known to be wise and successful, known as leaders, leading investors or investors of reference.
These known investors are called by several names:
followers, fund matchers, sheeps, brainless and so on, but must not be underestimated because of those nicknames. Very often, they are large and powerful institutional investors.
The advantage of dealing with followers is that they will usually be much faster in their decision process and typically match the funds already raised.
This is why an experienced fundraiser will immediately contact fund matchers as soon as one leading investor invested, in order to speed up the fundraising process.
The threshold to play the matching fund game begins when at least one-tenth to one-eighth of the securities issue was sold and one leading investor invested, if and only if, the issuer is current in its reporting, especially in its audited financial statements.
Under these conditions, it is easy for the fundraiser to contact followers and to have amount raised matched by a follower. Three or four matches later the whole issue is sold, just like that !
The matching funds process tends to trigger what Wall Street calls a domino effect. This domino effect especially occurs in the public equity world due to the impact of successive purchases on the stock price, but it also happens in private equity transactions.