Fund Structure
Reserve Capital
Last updated
Quick Answer
Funds set aside by a VC fund for follow-on investments in existing portfolio companies rather than new investments.
Reserve capital is the portion of a VC fund earmarked for follow-on investments in existing portfolio companies rather than new deals. Most VC funds allocate 40-60% of total capital to reserves. Having adequate reserves matters enormously: it lets investors support their best companies through subsequent rounds (maintaining ownership), participate in pro-rata rights, and bridge portfolio companies through difficult periods. Funds that invest all capital in initial checks and have nothing left for follow-ons suffer two problems: they dilute without ability to participate, and they lose the ability to send strong 'insider backing' signals to new investors in subsequent rounds.
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Frequently Asked Questions
What is Reserve Capital in venture capital?
Reserve capital is the portion of a VC fund earmarked for follow-on investments in existing portfolio companies rather than new deals. Most VC funds allocate 40-60% of total capital to reserves.
Why is Reserve Capital important for startups?
Understanding Reserve Capital is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Reserve Capital fall under in VC?
Reserve Capital falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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