Dear SaaStr: What Is “Uncalled Capital” in a VC Fund?

This is worth understanding as a founder.

In any venture fund of a material size (even just $50m+), the vast majority of the fund is not used for initial checks into startups.  Yes, that’s right.  Most of the fund is not used for initial checks into new investments!

Here’s how it breaks down:

  • First, fees will consume ~20% of most funds. Fees are 2%-2.5% annually in most funds. This declines in later years, but over the 10 year lifetime of a fund, fees typically eat up 20%-25% of the fund. “Recycling” can be used to recapture some of this, in essence (i.e., reinvesting some gains), but let’s put that important nuance aside. Recycling is optional and often doesn’t happen.
  • And Second, often $1-$2 is “reserved” for each $1 initially invested. Most mid-sized and larger firms keep $2 for second and third checks for each $1 they invest in initial checks. It often is a bit lower ($1:$1) for smaller funds, but usually is $2:$1 for any fund much bigger than $100m-$150m.

So let’s use a $100m fund size for an example:

  • $20m might be used up on “fees” — leaving $80m.
  • $25m-$30m of the $100m might be used for “first checks” — say $2m x 15 investments = $30m.
  • $55m-$60m might be used for “reserves”, for later investments into both winners, and companies struggling.

What isn’t used yet for fees or reserves or initial investments is “uncalled capital”. A fund will often call 10%-20% upon formation for initial investments and fees … and call the rest of the 80%-90% over the next decade (or even longer).

And importantly, given fees and reserves, often only 25% of the fund’s nominal size will be used for first checks into brand new startup investments.

That’s a lot, lot less than most folks expect.

A related post here:

Need a Second Check From Your VCs? Here’s How “Reserves” Work

(Not Much Left image from here)

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