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

Related Terms

Advanced

spray and delay

A strategy where investors make many small bets, then heavily support only the winners in subsequent rounds. The venture capital version of throwing spaghetti at the wall, then only cooking the pieces that stuck.

🚀 Startup / VC

Intermediate

flat round

A financing round raised at the same valuation as the previous round, suggesting a company has neither advanced nor declined—essentially treading water while burning cash. More diplomatically acceptable than a down round but almost as concerning to investors.

🚀 Startup / VC

Intermediate

pirate metrics

The AARRR framework measuring Acquisition, Activation, Retention, Referral, and Revenue—the key metrics for growth-stage startups. Named because AARRR sounds like a pirate, which is somehow still funny to founders.

🚀 Startup / VC

Intermediate

feature factory

A product development organization obsessed with shipping features rather than solving customer problems or delivering value. The startup equivalent of a hamster wheel—lots of motion, no actual progress.

🚀 Startup / VC

Intermediate

discount rate

The percentage discount early investors get when their notes convert to equity, rewarding them for investing before a priced round. It's the early bird special of startup investing, typically 15-25%.

🚀 Startup / VC

Intermediate

pro rata rights

The sacred privilege granted to investors allowing them to maintain their ownership percentage in future funding rounds by ponying up more cash. It's like a VIP pass that lets you keep throwing money at a company before it becomes wildly successful or spectacularly flames out.

🚀 Startup / VC

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