reserve allocation

Definition

Capital set aside by a VC fund to support existing portfolio companies in future rounds. The difference between investing in 20 companies and actually having money to help the 2-3 that work.

Example Usage

We maintain a 50% reserve allocation strategy, meaning half our fund is earmarked for follow-on investments in our winners.

Origin

Fund management practice standardized in the 1990s

Fun Fact

The reserve ratio (initial:follow-on) is one of the biggest strategic differences between funds—spray-and-pray funds reserve less, concentrated funds reserve more.

Source: Venture capital fund management practices

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