Fund Structure
Last updated
Quick Answer
A fund's plan for allocating capital between initial investments and follow-on investments in existing portfolio companies.
Reserve strategy determines how a fund splits capital between initial investments and follow-on investments. A typical seed fund might deploy 40-50% in initial investments and reserve 50-60% for follow-ons. The strategy must balance competing needs: enough initial investments for diversification, enough reserves to double down on winners, and flexibility to respond to unexpected opportunities or bridge needs.
In Practice
A $100M fund deploys $40M across 20 initial investments ($2M each) and reserves $60M for follow-ons. After 2 years, the GP identifies 5 breakout companies and allocates $8-12M in follow-on reserves to each.
Why It Matters
Reserve strategy is one of the most impactful decisions a GP makes. Too little in reserves means missing follow-on opportunities in winners; too much means insufficient initial diversification.
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Reserve strategy determines how a fund splits capital between initial investments and follow-on investments. A typical seed fund might deploy 40-50% in initial investments and reserve 50-60% for follow-ons.
Understanding Reserve Strategy is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Reserve Strategy 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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