Fund Structure
Last updated
Quick Answer
The percentage of a fund's capital set aside for additional investments in existing portfolio companies versus initial investments in new companies.
The follow-on reserve ratio determines how a fund allocates its capital between initial investments in new companies and follow-on investments in existing portfolio companies. A fund with a 50/50 reserve ratio deploys half its capital in initial investments and reserves the other half for follow-ons. The optimal ratio depends on the fund's strategy, stage focus, and expected graduation rate from one round to the next.
In Practice
The $100M seed fund maintained a 60/40 follow-on reserve ratio, deploying $60M across 40 initial seed investments and reserving $40M for pro-rata follow-on investments in the ~15 companies expected to raise Series A rounds.
What good looks like
Why It Matters
Getting the reserve ratio wrong can destroy fund returns. Too little reserve and you can't support your winners; too much and you're not making enough initial bets to find winners. The ratio should reflect your stage, strategy, and historical graduation rates.
VC Beast Take
Reserve ratios are one of the most debated topics in fund construction. Early-stage funds increasingly lean toward higher reserve ratios (50-60%) as the cost of maintaining ownership in breakout companies has increased. The key is having the discipline to deploy reserves only in your best companies.
Related concepts
Venture Capital KPIs: 20 Metrics Every GP Should Track
Most GPs are flying blind. Here are the 20 VC KPIs that separate disciplined fund managers from everyone else — with benchmarks, formulas, and why each one matters.
Modern Portfolio Theory for Venture Capital: Does MPT Apply to VC?
Harry Markowitz's Modern Portfolio Theory revolutionized public markets. But VC returns follow power laws, not normal distributions. Here's where MPT works in venture — and where it completely breaks down.
Portfolio Construction for VC Funds: How Many Bets and How Much Per Bet
The power law rules VC. Seed funds do 25-40 deals, Series A funds do 15-25. Here's the math behind check sizes, reserves, ownership targets, and concentration risk.
VC Interview Questions: 30 Questions They'll Actually Ask (With Answers)
30 real VC interview questions organized by category: technical, market thesis, deal evaluation, and behavioral. With frameworks for answering each one.
Solo GP Venture Capital: How to Run a One-Person VC Fund
Solo GP venture capital is one of the fastest-growing fund models in the industry. Here's how to structure, launch, and run a one-person VC fund that LPs will back.
Pro Rata Rights: Why They Matter and When to Exercise
Pro rata rights can make or break your fund's returns — but only if you know when to exercise them. Here's a practical framework for making smarter follow-on decisions.
The First Fund Playbook: From Zero to Fund I Close
The definitive playbook for raising your first venture fund — building your track record, finding LPs, structuring terms, and closing Fund I.
The Quarterly Report Template: What LPs Actually Want to See
A practical template for venture fund quarterly reports — with the exact sections, metrics, and format that institutional LPs expect.
Fund Formation 101: The Complete Guide to Structuring a VC Fund
Everything you need to know about structuring a venture capital fund — entity selection, legal documents, regulatory requirements, and the decisions that shape your fund's DNA.
The Emerging Manager Playbook: From First Check to Fund I Close
The definitive guide for first-time fund managers. Everything you need to go from LP pitch anxiety to a closed Fund I — thesis, structure, legal, fundraising, and execution covered in full.
The follow-on reserve ratio determines how a fund allocates its capital between initial investments in new companies and follow-on investments in existing portfolio companies.
Understanding Follow-On Reserve Ratio is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Follow-On Reserve Ratio falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
Newsletter
Fund operations, one problem a week — plus benchmarks from 75,000+ SEC filings. Every Tuesday.
The VC Beast Brief
The weekly brief for emerging managers and founders
Weekly intelligence on fundraising, VC strategy, and the signals that matter. Every Tuesday, free.
Archstone
Run your fund like an institution.