Limited partners
What should an LP ask about follow-on reserves at a seed venture fund?
a 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 manager targets companies with an initial customer base and plans to join priced rounds. It uses larger initial checks than the pre-seed example and expects a smaller portfolio. Co-investor access is part of the thesis.
An attractive round does not prove allocation access or consistent decision quality. Verify what the manager could actually invest, the price paid, and the ownership maintained.
Reconcile the portfolio plan with its capital budget
This fictional model starts with $60,000,000.00 of commitments and sets aside $10,000,000.00 for modeled lifecycle costs and $20,000,000.00 for follow-ons. That leaves $30,000,000.00 for initial checks. A target of 25 investments at $1,200,000.00 requires $30,000,000.00 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 strategy with actual check sizes and capacity. Identify whether the model relies on ownership or access that has not yet been demonstrated. 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 | $60,000,000.00 |
| Modeled lifecycle costs | $10,000,000.00 |
| Modeled follow-on reserves | $20,000,000.00 |
| Available for initial checks in this model | $30,000,000.00 |
| Target initial investments / check size | 25 / $1,200,000.00 |
| Initial-investment capital required | $30,000,000.00 |
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
- Which allocations were actually obtained?
- What changes when round sizes rise?
- How are reserves prioritized?
Request executed investment records where available, a complete portfolio schedule, reserve assumptions, and references about the manager's role. Keep proposed deals separate from completed investments.
A concrete next test
Select one completed investment and one opportunity where the manager could not obtain the desired allocation. Ask how access, price, and ownership affected the decision. Include both examples when evaluating whether the proposed check sizes and company count are executable.
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 strategy with actual check sizes and capacity. Identify whether the model relies on ownership or access that has not yet been demonstrated.
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.