Does your check size still match your fund size

The question

Does the cheque this fund can actually write buy a position at the stage this fund says it invests at.

This is a narrower question than how big the fund should be, and a more useful one after the fund has closed, because fund size is fixed by then and the cheque is not. Almost every input to it remains adjustable.

The arithmetic

The cheque available for initial positions is not the fund size. It is what remains after the reserve is set aside, divided across the number of companies the fund intends to back.

A $60 million fund holding 40 percent in reserve has $36 million for initial positions. Across 30 companies that is $1.2 million each. Across 20 it is $1.8 million. The fund size did not change; the cheque nearly doubled.

VC Lab's guidance to first-time managers adds a correction that quietly matters: check you have not forgotten expenses, because doing so leaves invested capital too high and distorts the returns that follow from it. Management fees and fund expenses come out of committed capital over the fund's life, so the capital genuinely available to invest is smaller than the headline. A fund modelling against its gross size is modelling a cheque it cannot write.

Why the cheque has to match the stage

Each stage has a range of cheque sizes that buy a real position. Below it, the fund is a small participant in rounds it does not influence, taking a position too small to matter to its own returns. Above it, the fund is over-concentrating relative to the portfolio it said it would build, and will run out of capital before reaching its target count.

VC Lab frames the same test as a question to ask other people: is it logical that you can get the kind of deals you seek at your cheque size. That is the right instinct, and this subscore is the version of it that does not require asking anyone.

What moves it

Four inputs, and it is worth knowing which ones are still available after a close.

Fund size is fixed by the partnership agreement. It is the one input that does not move, which is exactly why the others have to.

Reserve share moves, and is the input most often adjusted without noticing the consequence. Raising the reserve lowers the initial cheque proportionally.

Target portfolio count moves, and moves the cheque most directly. It is also the input most likely to drift in practice without ever being formally revised.

Target stage moves, though it is the most expensive to change, because it was promised to LPs and it changes what the firm is.

What this subscore does not read

It reads the declared configuration, not the cheques the fund has actually written. A fund whose realized average cheque has diverged from its implied cheque is drifting, and that is visible in the portfolio record rather than here.

It also takes no view on whether the fund is the right size. That question is answered before a close and this subscore is most useful after one.

Sources

• How to Build a VC Fund ModelVC Lab (Decile Group), May 2022, updated September 2024Conceptual rather than arithmetic. Cited for its sanity checks: whether the deals you want are available at your cheque size, and the warning that unbudgeted expenses leave invested capital overstated.