Meaning and transaction use
An SEC-filed fund prospectus states that the fund intended to hold up to 20% of net assets in reserve for follow-on investments after its investment period. [S1]
Another SEC-filed prospectus explains that follow-on investments may maintain ownership, exercise securities or preserve or enhance investment value, subject to capital and opportunity availability. [S2]
Proposed control method: allocate reserve by company and scenario, then re-underwrite each follow-on before investment.
Worked example
Illustrative fund allocation only. Assume 100.0 million of investable capital, a 20.0 million follow-on reserve and 8.0 million already deployed from that reserve.
Scroll the table horizontally to view all columns.
| Measure | Calculation | Result |
|---|---|---|
| Initial reserve ratio | 20.0 / 100.0 | 20.0% |
| Reserve deployed | Given | 8.0m |
| Reserve remaining | 20.0 - 8.0 | 12.0m |
| Remaining reserve ratio | 12.0 / 100.0 | 12.0% |
The illustrative fund retains 12.0 million, or 12.0% of investable capital, for future follow-ons.
Proposed transaction review process
Set portfolio cases
Forecast company funding, milestones, timing and ownership.
Allocate reserve
Assign base and downside amounts with fund-level headroom.
Re-underwrite
Review performance, terms, concentration and alternatives before use.
Refresh quarterly
Update needs, probabilities, exits and unallocated capacity.
Evidence checklist
Fund terms
Investment period, recycling, concentration and reserve limits.
Company plans
Runway, milestones, financing schedule and ownership.
Round terms
Price, security, rights, syndicate and use of funds.
Portfolio model
Committed, allocated, deployed and unallocated capital.
Decision framework
| Situation | Proposed action |
|---|---|
| A company underperforms | Re-underwrite value, financing need and downside options. |
| A winner raises capital | Compare ownership maintenance with other opportunities. |
| Several calls coincide | Prioritise using approved portfolio criteria and liquidity. |
| Reserve exceeds expected needs | Reallocate within fund terms and strategy. |
Common errors to check
- Treating discretionary reserves as commitments.
- Allocating by ownership alone.
- Ignoring fund expenses and capital calls.
- Following on without fresh underwriting.
Build the follow-on reserve model
Bring fund terms, portfolio financing plans and ownership targets to a reserve review. Reconcile allocation, timing and concentration.
Discuss the transactionPrimary references and editorial scope
- SEC filing: Follow-on reserve allocation
Example fund intention to reserve up to 20% of net assets for follow-on investments. Reference checked 17 September 2026. - SEC filing: Follow-on investment purposes and risks
Examples of follow-on purposes, capital constraints and investment risks. Reference checked 17 September 2026.
General transaction education using public United States filings. Figures are hypothetical. Fund documents, commitments, regulation and investment approvals govern actual reserve use.
General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.
