When Your VC Says “Wait,” Ask If It’s the Market or Their Fund
This biased but largely unspoken truth in the industry is that once a VC has invested, the fund’s mechanics play as big a role in a founder’s next round as its company performance.
Most investors set aside a meaningful portion of capital, 50–300%+, for follow-ons. Funds have different strategies. Our strategy has no meaningful pro rata elements so reserves are low, while the big lifecycle funds have huge reserves to double and triple down on their “winners.” But reserves get deployed unevenly. A few breakout companies can consume them fast.
How much reserve a VC has left, and for whom, quietly shapes a lot of the fundraising advice they give. I can “feel” it in the room as a Board Member.
When a VC says “the market feels choppy, I’d wait” or “you should move now before the window closes,” it’s worth founders asking: is that a read on the market, or a read on the investor’s fund? Reserves are just one layer.
- Where they are in the fund cycle
- How the overall fund is performing
- Whether they’ve had recent liquidity
- The company’s position in the fund (e.g. the big returner?)
All of the factors bleed into these conversations in ways that are hard to fully disentangle from what’s actually right for the company.
What’s interesting is how openly this gets discussed among VCs when not around founders. When co-investors huddle on a follow-on, one of the first things that comes up, often before metrics or market timing, is where everyone sits on reserves and fund cycle.
VCs say things like:
- “We’re late in our fund, we can’t lead.”
- “We’ve got reserves but they’re earmarked.”
- “We’re in a new fund, we have flexibility.”
That conversation shapes the outcome of a round in ways that aren’t always visible to the founders involved.
What most founders also don’t see is how much time GPs spend on portfolio math. Ownership targets, reserve ratios, fund return models – it’s a bigger part of the job than the outside world realizes. And the more quantitatively minded the investor, the more this calculus is running in the background on every follow-on conversation (and new investment decision).
It’s not cynical, it’s just how funds are managed. I’ve caught myself doing it. You start with a genuine market observation and somewhere along the way realize your view is at least partly colored by your own reserve position or other fund mechanics. It’s hard to fully separate the two. Data and AI are actually making it easier to be “quant-y” which may impact this even more going forward.
I struggle with these biases myself and like to think I check them at the door, but I probably don’t always.
I go back and forth on whether this is just how the business works – these constraints are real and they exist for legitimate reasons – or whether it creates a misalignment that’s worth being more honest about. Probably both.
