The other micro VC allocation model


Shaun Abrahamson Contributor

More posts by this contributor With new tech coming online, cities need a department of urban testing How should startups work with city governments?

Portfolio co-founder: Our other investors want to participate but our lead wants to take most of the round.

Me: OK

Portfolio co-founder: So that means pro-rata is going to be tough.  

Me: Let’s see what everyone says.

A few days later.

Portfolio co-founder: The math worked out. Some people didn’t do their pro-rata and others did more.

Me: In theory, this shouldn’t happen because everyone is doing their pro-rata, but this is usually how things seem to work out. The round wasn’t going to be put at risk over pro-rata.

We’re always curious to see how rounds come together when there is limited capacity for both new investors and existing investor pro-rata. For the most part, there is supposed to be one core investor strategy; the maintainers, who use reserves and then opportunity funds or SPVs to avoid or minimize dilution. Sometimes there are also accumulators, who use multiple rounds to expand their ownership, but this is more common in private equity outside of venture capital.


Read the rest of this post here