How much of your firm is riding on one company

The question

How much of the firm's total deployed capital sits in any one company, counting every fund that holds it.

The counting is the whole point. A position that is a reasonable share of Fund II can be a substantial share of the firm once Fund I's original cheque and Fund III's follow-on are added to it. Each fund's own reporting shows a proportionate position. The firm holds something else.

How exposure accumulates without a decision

Nobody sets out to build a concentrated firm-level position. It assembles from a sequence of individually sensible decisions.

The company performs, so the fund follows on. It performs again, and by now the original fund is out of reserve capacity, so the new fund participates. Each of those was the right call on its own terms, taken by people with good reasons, and none of them was a decision about the firm's total exposure. The exposure is the residue.

This is also why the measurement uses deployed capital, initial cheque plus every follow-on, rather than counting positions. The follow-ons are where the concentration comes from.

Every position above the line is its own flag

There are two lines: one above which a position is surfaced, and a higher one above which it is surfaced more seriously. What matters more than either is how multiple positions are treated.

Each company above the lower line produces its own flag. This is not a single condition that flips once and stays flipped. A firm with one large position and a firm with four are in materially different situations, and a score that treated them the same would be telling both of them the same thing.

The reasoning is that each large position is a separate structural dependence. A firm whose returns rest on one company has one problem. A firm with four such positions has four, and it has also quietly become a concentrated fund wearing the clothes of a diversified one. Catastrophic exposure is a property of a position rather than a property of a firm, so the engine counts positions.

Read differently by lifecycle

The lines sit differently for an emerging firm than for an established one, and deliberately so. Concentration of conviction is structurally appropriate at the Conviction stage: a firm running its first fund with a large position in its best company is doing the thing the stage rewards.

The same distribution at a Continuity-stage firm reads differently, because a firm whose defining claim is durability across partner generations has made a different promise to its LPs about how its capital behaves.

Where this shows up in a live decision

This is the reading behind one of the constraints the Scenario Engine can name as binding. When a follow-on is evaluated and the module reports concentration as the limiting factor, this is the exposure it is reading: not the fund's position in the company, but the firm's, across every fund.

That is the moment the measurement earns its keep. An allocation limited by concentration is not a judgment about the company, and a General Partner who reads it as one will draw the wrong conclusion. The company may be the best in the portfolio. The point is that the firm already owns as much of it as it can hold without the firm becoming a bet on that company. What actually changes a follow-on decision covers how to read that constraint when it appears.

What this does not read

It reads capital deployed rather than current value. A company that has been marked up substantially represents more of the firm's value than of its deployed capital, and this reading will not show that. The choice is deliberate: deployed capital is what the firm actually committed and cannot get back, and marks are an estimate.

It also groups by company name as recorded, so a company that appears under different names across funds will read as two smaller exposures rather than one large one. That is worth checking before reading a result that looks better than expected.