Working backward from the fund's math
A fund doesn't pick a check size arbitrarily, it works backward from how big a stake it needs to make its power-law math work (Lesson 21 makes this precise), then lets valuation determine the dollar check required to get there. A $150m fund targeting meaningful ownership in its winners typically wants to own 15-20% at first check, not 2%, because a 2% stake in even a spectacular outcome barely moves the fund's overall return.
The check-size formula
Check size = target ownership % × post-money valuation
Worked example: a fund targets 18% ownership in a company raising at a $22m post-money valuation.
| Value | |
|---|---|
| Post-money valuation | $22m |
| Target ownership | 18% |
| Required check size | 18% × $22m = $3.96m |
The tension: price vs. ownership
If a company's valuation runs higher than expected, a fund faces a real choice: pay more to hold the target ownership, or accept a smaller stake at the planned check size. Funds with a firm ownership target (common among Series A-focused funds) tend to pay up rather than shrink their stake; funds more focused on portfolio diversification (common at pre-seed) more readily accept a smaller stake rather than overpay.
| Fund strategy | Typical ownership target | Typical check count per fund |
|---|---|---|
| Concentrated / ownership-focused | 15-25% | 15-25 companies |
| Diversified / spray-and-pray | 3-8% | 60-150+ companies |
Checkpoint
- Check size = target ownership % × post-money valuation.
- Funds work backward from an ownership target, not forward from an arbitrary check amount.
- A concentrated fund pays up to defend ownership; a diversified fund more readily accepts a smaller stake.
If anything here still feels unclear, ask before moving to Lesson 21.