Fund Structure
Reserve Capital
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.