---
title: "What Is Reserves?"
term: "Reserves"
description: "In venture fund context, reserves are capital a GP sets aside from the fund for follow-on investments in existing portfolio companies — rather than for new initial checks. Founders also use 'reserves' for balance-sheet cash held for contingencies."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["fund-economics", "venture-capital"]
source: https://venturecapitaltracker.com/glossary/reserves
---

# What Is Reserves?

> In venture fund context, reserves are capital a GP sets aside from the fund for follow-on investments in existing portfolio companies — rather than for new initial checks. Founders also use 'reserves' for balance-sheet cash held for contingencies.

**Reserves** (in fund economics) are the portion of a venture fund earmarked for follow-on investments in existing portfolio companies — pro-rata and defensive support — distinct from capital allocated to new deals.

## How it works

GPs often target reserve ratios — e.g., 50% of fund for initial checks, 50% for follow-ons — varying by strategy. Reserve decisions happen in partnership meetings: double down on breakout companies, pay pro-rata to avoid dilution, or conserve cash when the fund is late-stage or recycling is capped. [/glossary/recycling](/glossary/recycling) and [/glossary/capital-call](/glossary/capital-call) capacity affect usable reserves.

Company-level **reserves** mean retained cash or bad-debt provisions on financial statements — different context, same word.

## Why it matters

- **Founders:** Clarify lead's reserve intent early; "we're in your cap table" does not guarantee a follow-on check.
- **GPs:** Misallocated reserves starve winners or overfund zombies — both hurt fund IRR.
- **LPs:** Reserve discipline appears in annual letters and affects DPI timing versus concentration risk.

## Common mistake

Founders assuming seed fund will lead Series B without reserve policy discussion. Many seed funds are structurally reserve-light by design.

## Related ideas

[/glossary/recycling](/glossary/recycling), pro-rata rights, follow-on strategy, and fund allocation.

## FAQ

### What are reserves in simple terms?

For a VC fund, reserves are money kept back to support companies already in the portfolio when they raise again — not for brand-new bets. On a company balance sheet, reserves can mean cash saved for emergencies.

### Why do reserves matter?

Follow-on checks signal conviction and protect ownership. Founders without reserved support may face outside leads who set new terms; LPs want GPs to reserve enough to defend winners.


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Source: https://venturecapitaltracker.com/glossary/reserves