Limited partners
What should an LP ask about follow-on reserves at a pre-seed venture fund?
a pre-seed 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 plans small initial investments before companies have repeatable revenue. It expects to reserve capital for selected later rounds. The LP is reviewing whether check sizes, ownership assumptions, and support work fit the fund budget.
Early paper marks can move before meaningful liquidity. Separate investment selection, subsequent financing, ownership dilution, and cash distributions when discussing progress.
Reconcile the portfolio plan with its capital budget
This fictional model starts with $30,000,000.00 of commitments and sets aside $5,000,000.00 for modeled lifecycle costs and $10,000,000.00 for follow-ons. That leaves $15,000,000.00 for initial checks. A target of 30 investments at $500,000.00 requires $15,000,000.00 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 proposed number of companies with investable capital after the model's costs and reserves. Treat a target ownership percentage as an assumption until terms support it. 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 | $30,000,000.00 |
| Modeled lifecycle costs | $5,000,000.00 |
| Modeled follow-on reserves | $10,000,000.00 |
| Available for initial checks in this model | $15,000,000.00 |
| Target initial investments / check size | 30 / $500,000.00 |
| Initial-investment capital required | $15,000,000.00 |
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 is funded by the first check?
- Which follow-ons qualify?
- How are unsuccessful investments represented?
Request the portfolio model, reserve policy, ownership assumptions, dated company evidence, and a reporting sample that distinguishes marks from cash. Include companies that failed or did not raise again.
A concrete next test
Rebuild the initial-check and reserve model with a smaller final close. Ask which portfolio assumptions change and what evidence supports the ownership target. Compare early company milestones with paper marks so the LP can distinguish learning progress from cash realization.
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 proposed number of companies with investable capital after the model's costs and reserves. Treat a target ownership percentage as an assumption until terms support it.
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.