Reserves compete with initial checks for the same budget.
An initial check and a follow-on reserve both consume finite fund capital. A reserve plan first deducts the expense budget from commitments and then divides the investable amount between initial deployment and later participation.
Equal per-company reserves are an average planning convention, not a claim that every company should receive the same support. The actual need depends on ownership, future round sizes, prices and the concentration policy.
The formula, made clear.
- Reserve fraction
- Applied to investable capital after the entered lifetime fee/expense budget.
- Average initial check
- Initial investment budget divided by target company count.
Put the numbers in context.
A $50,000,000.00 fund less $10,000,000.00 lifetime costs leaves $40,000,000.00 investable. A 50% reserve sets aside $20,000,000.00 and leaves $1,000,000.00 average initial checks across 20 companies.
| Input | Example value |
|---|---|
| Fund commitments | $50,000,000.00 |
| Lifetime fees and fund expenses budget | $10,000,000.00 |
| Share of investable capital reserved | 50% |
| Target portfolio companies | 20 companies |
| Total follow-on reserve | $20,000,000.00 |
What this calculation assumes
A static commitment budget with no recycling, investment income, subscription facilities or changing fee schedule. The entered fee budget is not calculated from a management-fee rate.
What to consider next.
Compare average reserves with the pro-rata cost of likely future rounds and test a concentrated follow-on policy.
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