Limited partners
What should an LP ask about follow-on reserves at a micro venture fund?
a micro venture fund: Ask how reserves are sized, allocated, and revisited as evidence changes.
Ask how reserves are sized, allocated, and revisited as evidence changes. A reserve policy can describe discipline without guaranteeing access to later rounds. Clarify how the manager compares supporting existing holdings with making new investments.
Start with the decision
Review the decision criteria, capital model, and examples of follow-on and pass decisions. Test simultaneous demands and adverse scenarios. Ask how conflicts or allocation across related vehicles are handled under the applicable policies.
The illustrative scenario
This is an educational workbook. The company or fund and all numerical inputs below are fictional. They are not ADIN results, customer claims, market benchmarks, or a forecast.
The fictional fund has a small capital base and a narrow initial-check range. Its manager uses a lightweight team and external service providers. The LP is testing whether fees, operating costs, and portfolio ambitions fit together.
A small fund is not automatically efficient or inefficient. The relevant issue is whether the budget funds the promised work while leaving enough capital for investments and reserves.
Reconcile the portfolio plan with its capital budget
This fictional model starts with $10,000,000.00 of commitments and sets aside $2,000,000.00 for modeled lifecycle costs and $4,000,000.00 for follow-ons. That leaves $4,000,000.00 for initial checks. A target of 16 investments at $250,000.00 requires $4,000,000.00 before any other unmodeled uses.
The cost amount is a hypothetical budget, not a quoted fee or an industry norm. Actual fees, expense allocation, offsets, fund term, investment authority, and distributions depend on the governing arrangements. A balanced budget does not establish that the manager can obtain the allocations, ownership, or results assumed in the strategy.
Compare the operating plan with the cash available under the actual fee terms. Stress-test a smaller final close rather than assuming the target will be reached. Reduce the final close or increase the initial check and identify what changes first: company count, reserves, operating resources, or the strategy itself. For this article's question, use the resulting constraint to request the specific evidence or document provision rather than treating the spreadsheet as the decision.
| Item | Illustration |
|---|---|
| Fictional fund commitments | $10,000,000.00 |
| Modeled lifecycle costs | $2,000,000.00 |
| Modeled follow-on reserves | $4,000,000.00 |
| Available for initial checks in this model | $4,000,000.00 |
| Target initial investments / check size | 16 / $250,000.00 |
| Initial-investment capital required | $4,000,000.00 |
Use this worksheet
Answer the questions with a source, date, owner, and next action. Mark an unknown as unknown. Use public or permissioned information and involve a qualified specialist when a question requires expertise beyond the team’s competence.
- What qualifies for a follow-on?
- Who makes the decision?
- What access is assumed?
- How are competing demands ranked?
- What happens when reserves are insufficient?
Questions specific to this scenario
- What changes after a smaller close?
- Which costs are fixed?
- Can the promised support fit the budget?
Request a lifecycle budget, provider scopes, portfolio model, and assumptions about future closes. Keep manager-company revenue distinct from fund capital and investment proceeds.
A concrete next test
Reduce the fictional final close while keeping quoted fixed operating costs visible. Ask which work can be scaled down and which obligations remain. Compare the revised budget with the promised portfolio support before assuming that a smaller vehicle automatically stays efficient.
Interpret the result
Reserves create flexibility only within the fund's actual constraints. Avoid treating a fixed reserve percentage as universally optimal or assuming every promising company will receive support on acceptable terms.
Compare the operating plan with the cash available under the actual fee terms. Stress-test a smaller final close rather than assuming the target will be reached.
Sources and method
These primary resources provide background for the concepts. The fictional scenario, calculations, and worksheet are ADIN educational examples; the sources do not report or validate those invented results. Reviewed October 11, 2026.