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Home / Glossary / Reserve ratio

Reserve ratio

The proportion of a venture fund set aside for follow-on investments. Under-reserving is a common structural error in emerging venture funds.

Reserve ratio — The proportion of a venture fund set aside for follow-on investments. Under-reserving is a common structural error in emerging venture funds.

Under-reserving is one of the most common structural errors in emerging venture funds specifically — a manager who sets aside too little for follow-on investment ends up watching their best portfolio companies dilute them in later rounds precisely when protecting that position matters most.

Frequently asked questions

What reserve ratio is typical for a venture fund?
Commonly in the 40-60% range of total fund capital, though it varies significantly by stage and strategy — earlier-stage funds generally need higher reserve ratios given more follow-on rounds ahead.
What happens if a fund's reserves run out?
The manager can no longer defend its ownership percentage in follow-on rounds, leading to dilution in exactly the portfolio companies that may be performing best.

Nothing on this page is legal, tax, or investment advice. SeRuM is not a registered broker-dealer, not a placement agent, and not an investment adviser.

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