Fund Structure
Reserve Strategy
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.
Related Concepts
Further Reading
Common Angel Investing Mistakes and How to Avoid Them
The most costly mistakes angel investors make — from insufficient diversification and ignoring terms to falling in love with founders and skipping reference checks. Plus how to avoid each one.
Follow-On Strategy for Angel Investors: When to Double Down
How to think about follow-on investments in your angel portfolio — pro-rata rights, signaling risks, reserve allocation, metrics to evaluate, and when it's smarter to walk away.
How to Build an Angel Investing Portfolio
The math behind angel portfolio construction — why you need 20+ investments, how to size checks, allocate across sectors, spread vintage years, and maintain follow-on reserves.
Portfolio Construction: How Top VCs Build Winning Funds
Check sizes, reserve ratios, concentration vs diversification, follow-on strategy—the math behind how top VCs structure their portfolios to maximize fund returns.
How to Evaluate a VC Firm Before Taking Their Money
Not all VC money is equal. The wrong investor can slow you down, block future rounds, or make your life miserable for a decade. Here's how to do due diligence on your investors.
How Pro-Rata Rights Work and Why They Matter
Pro-rata rights let investors maintain their ownership percentage in future rounds. The math behind exercising vs. not exercising creates billions in value differences. Here's how it works.
Related Guides
The Complete Guide to Startup Fundraising
A step-by-step guide to raising capital for your startup — from deciding when to raise, to closing your round and everything between. Written for founders, by people who've seen both sides.
How Venture Capital Works: The Complete Guide
Everything you need to understand about venture capital — how funds raise money, how deals get done, and how returns flow back to investors. The definitive primer.
VentureKit
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