Pillar
Scenario Engine and Follow-On Strategy
The next round brings a practical question: should the fund invest more, how much and when? These pages connect that decision to the reserve plan, the available evidence and the fund’s constraints.
8 pages
Using follow-on scenarios
- Whether to follow on and when are two different questionsWhether to invest more in a company and whether to do it now are separate questions. Read allocation and timing signals, including when inputs are incomplete.
- What actually changes a follow-on decisionRead the positive signal, negative signal and binding constraint behind a follow-on suggestion, then bring your own company and fund context to the decision.
- Why a follow-on model should not tell you what to doWhat a follow-on scenario can support, what it leaves to the GP and why a saved assessment does not execute an investment or forecast a return.
Reserve policy
- How much should a fund reserve?How practitioners approach follow-on reserves, why fund size and investment assumptions matter, and what modeled scenarios can teach about selection.
- Does the 40 to 50 percent reserve rule still fit?Explore three views on follow-on reserves: reserve-light, probability-driven and reserve-preserving. Compare their arguments and common ground.
- Should you pick your reserve percentage or derive it?Test a reserve percentage against initial investment costs, follow-on needs and fund obligations, with practitioner perspectives on budgeting and selection.
- What your follow-on rate says about your firmExamine follow-on participation and check concentration together, then separate investment choices from company financing needs, access and fund constraints.
- What happens when your fund runs out of follow-on capitalDistinguish reserve overspend, deployment above fund size and future financing needs, then review the available options under the fund’s terms.
How to use a scenario
Architecture’s core scores review fund and firm design. The separate Scenario Engine supports a follow-on decision for one existing portfolio company in a proposed round. It returns a recommendation, a suggested allocation in dollars and relative to the modeled pro-rata amount, a timing signal and a three-part rationale.
Read the rationale alongside the allocation. Its positive signal, negative signal and binding constraint explain the assessment, including the firm’s exposure to that company across recorded funds. Bring in any company, legal or commercial context the inputs do not capture.
The module is decision support. It does not execute commitments and does not hold a standing recommendation between sessions, so a scenario run in March does not update itself in June. In its first version it evaluates follow-on decisions on existing positions only, and only where the position is still live. It does not evaluate new deals, which is a deliberate scope choice rather than a gap: a new investment is a judgment about a company the firm has no history with, and the module's inputs are largely a record of history the firm already has. The General Partner makes the decision.