A simpler version of a real problem

VC funds run formal reserves models: a fixed fraction of total fund capital deliberately held back, unallocated to new initial checks, specifically to fund pro rata (Lesson 9) into existing winners at later rounds. A solo angel doesn't need that level of formal modeling, there's no LP mandate requiring it, but the underlying problem is identical: capital spent entirely on new initial checks is capital that isn't available when your best-performing company raises its next round and offers you the chance to defend your position.

A rule of thumb that works without a spreadsheet

A simple, workable approach: decide upfront what fraction of your total angel-investing budget goes to brand-new initial checks versus follow-ons on existing positions, and hold the follow-on portion back rather than deploying it into more new companies. Many solo angels land somewhere around a 60/40 or 70/30 split between initial checks and reserved follow-on capital, though the right split depends on how many positions you're running (Lesson 20) and how early you invest, earlier and more numerous initial checks generally call for a larger reserve, since more of them will look worth doubling down on later.

A $200,000 angel-investing budget split three ways, illustrating how the reserve ratio changes how much goes to new initial checks.

Deciding when a reserve gets deployed

Not every company deserves a follow-on check just because you can afford one. The bar for exercising pro rata should be genuinely higher than your bar for the original check, you now have real evidence, not just a first-look screen, and that evidence should be pointing clearly upward: growing revenue, improving retention, strong metrics relative to the last round, not merely "the company is still operating." A reserve exists to double down on demonstrated winners, not to rescue positions that are struggling.

Checkpoint

  • Reserving capital for follow-ons is a simplified, individual version of a fund's formal reserves model, same underlying problem, no LP-mandated process.
  • A common starting split is roughly 60-70% to initial checks, 30-40% held back for follow-ons, adjusted for how many positions and how early you invest.
  • The bar for exercising a follow-on should be higher than the original check's bar, backed by real evidence of progress, not just survival.

If anything here still feels unclear, ask before moving to Lesson 22.