Follow-On Reserve Allocation Calculator

What This Calculator Does

The Follow-On Reserve Allocation Calculator helps you quickly and accurately estimate how much of your fund’s capital should be set aside for follow-on investments in your strongest portfolio companies. By inputting a few key parameters, you can gain clarity on how to balance your fund’s initial investments and reserves, ensuring you have enough capital for future funding rounds without overcommitting upfront. This calculator empowers general users and fund managers to make informed, data-driven decisions about capital allocation strategies in venture investing.

How to Use This Calculator

1. Enter your Fund Size: Input the total amount of capital available in your fund. This is typically the total committed capital you have raised from LPs.
2. Specify your Initial Check Size: Enter the average amount you plan to invest in each company during their first round (the initial investment).
3. Set the Target Number of Initial Investments: Indicate how many companies you aim to back with your initial checks.
4. Select the Reserve Percentage: Choose the percentage of your fund you want to reserve for follow-on rounds in your most promising portfolio companies.
5. Review Results: The calculator will display your Reserve Capital, Initial Capital, Max Initial Investments, and Reserve per Company, helping you visualize your capital deployment strategy.
6. Iterate as Needed: Adjust any input fields to see how changes in your assumptions affect your allocation outputs.

Definitions of Key Terms

Fund Size

The total amount of capital in your investment fund. This is the sum of money you can allocate across all investments, including both initial and follow-on rounds.

Initial Check Size

The typical amount you plan to invest in each company’s first round. This value helps determine how many companies you can initially back.

Target Number of Initial Investments

The planned number of different companies you aim to fund with your initial checks. This is a key driver for portfolio diversification.

Reserve Percentage

The portion of your fund you wish to set aside for follow-on investments in your highest-performing companies. This ensures you can double down on winners in later rounds.

Reserve Capital

The total amount of capital reserved for follow-on rounds. Calculated based on your fund size and reserve percentage.

Initial Capital

The total capital allocated for initial investments. Determined after accounting for the reserve allocation.

Max Initial Investments

The maximum number of initial investments your fund can make, given your chosen check size and initial capital allocation.

Reserve per Company

The average amount of reserve capital available for each company in your portfolio, assuming a uniform allocation across all initial investments.

Calculation Methodology

This calculator uses straightforward formulas to split your fund between initial and follow-on investments. By applying your reserve percentage to your fund size, it determines how much capital is set aside for follow-ons, leaving the remainder for initial investments. It then divides the initial capital by your intended check size to estimate the number of companies you can initially back, and finally, calculates the reserve per company by dividing the total reserve by the number of initial investments.

Reserve Capital = Fund Size x Reserve Percentage / 100

Initial Capital = Fund Size - Reserve Capital

Max Initial Investments = Initial Capital / Initial Check Size

Reserve per Company = Reserve Capital / Max Initial Investments

Practical Scenarios

• Early-Stage Venture Fund Planning: You are managing a $20 million seed fund and want to invest $500,000 per company while reserving 40 percent of your fund for follow-ons. The calculator instantly shows how many companies you can back and how much you can reserve for each.
• Adjusting Portfolio Diversification: You are considering increasing your number of initial investments from 20 to 30. By adjusting the target number and check size, you can see how this affects your ability to follow on in winners.
• Comparing Reserve Strategies: Unsure whether to reserve 30 percent or 50 percent of your fund? Input both scenarios to compare how your reserves and number of initial investments change, helping you decide which approach balances risk and upside.
• Allocating Reserves Across Portfolio: You want to ensure that each company can get a meaningful follow-on check. By viewing the reserve per company output, you can assess whether your planned reserve is sufficient to participate in Series A or B rounds.

Advanced Tips & Best Practices

• Stress-Test Different Scenarios: Experiment with various reserve percentages and check sizes to find the optimal balance between diversification and conviction in your winners.
• Consider Non-Uniform Reserve Allocation: While this calculator assumes a uniform reserve per company, in practice, you might allocate more to your highest performers. Use the Reserve per Company value as a baseline for further refinement.
• Account for Fund Fees and Expenses: Remember that the full fund size is rarely available for investing. Adjust your input for net investable capital after fees, management costs, and organizational expenses.
• Revisit Assumptions Annually: As your fund progresses, market conditions and portfolio performance may change. Periodically update your inputs to reflect new realities for better capital planning.
• Use the Tool for LP Communication: Share your allocation strategy and calculator outputs with limited partners to transparently demonstrate your disciplined approach to capital deployment.

Frequently Asked Questions (Optional)

Is the Reserve per Company always the amount I’ll invest in each follow-on?

Not necessarily. The calculator assumes an even allocation, but in practice, you may invest more in breakout companies and less in others. Use this number as a planning guide.

Should I include management fees in the fund size?

For more accurate planning, input your net investable capital (after deducting fees and expenses) as the Fund Size. This ensures your allocation outputs reflect your true available capital.

What if I want to reserve capital for only a subset of my portfolio?

If you plan to follow on in only a portion of your companies, adjust the Reserve per Company calculation manually after running the tool, or reduce the Target Number of Initial Investments accordingly.