LP · Limited Partner
The investor in a venture fund. LPs may include pension funds, foundations, family offices and other institutional or private investors.
← Startup MoneyVC FUND MATH.
Startup Money · Venture capital
VC FUND MATH.
FUND THE RIGHT FUTURE.
A good company is not automatically a good investment for every venture fund. Learn what a fund needs, how dilution changes outcomes and when another financing path may be the smarter choice.
Try the fund mathFounder lesson · 20-minute reading + 15-minute exercise · 14 October 2026
The founder's mistake
YOU PITCH A COMPANY. THEY RUN A FUND.
A founder describes the market, technology and customers. The venture capitalist must ask another question: if this company succeeds, will my ownership and the possible exit move the needle for the particular fund that invests?
That is why a credible €50 million exit may be exciting for the founders and angels but insufficiently material for a very large fund. Conversely, a small pre-seed fund may have little capacity to lead a €20 million round, even if it loves the technology.
Understand your investor
WHOSE MONEY IS IT?
A VC typically manages money committed by Limited Partners through a fund. General Partners decide which ventures receive capital and how much is reserved for later rounds. The fund's fees, carry, portfolio results and liquidity timing influence what its investors ultimately receive. The model below calculates only a single investment's gross outcome.
GP · General Partner
The team managing the fund, selecting investments and making capital-allocation decisions under the fund's governing documents.
Fund size
Capital commitments managed in one particular fund, not the entire firm's assets under management (AUM).
Reserves
Capital planned for follow-on investments in portfolio companies, which may help a fund maintain its ownership in later rounds.
TVPI / DPI
TVPI compares total fund value, including unrealized holdings, with paid-in capital. DPI measures cash and stock distributions returned to investors relative to paid-in capital.
Carry
The manager's contractual share of eligible investment profits. It is not the same as a return earned by an individual startup investment.
The mathematics
OWNERSHIP IS WHAT MAKES THE EXIT MATTER.
Think in stages: the fund buys an ownership stake, later funding dilutes that stake unless it follows on, and the exit equity value determines how much the fund receives. In this simplified model, preferred shares, debt, taxes, pro-rata follow-ons, carried interest and fees are excluded.
01
STAKE AT EXIT.
Entry % × (1 − future dilution %)
02
GROSS PROCEEDS.
Exit equity value × stake at exit
03
FUND CONTRIBUTION.
Gross proceeds ÷ fund size
An investment that returns its initial cheque 10× may still contribute only a small fraction of a large fund's total size. And a company with a spectacular valuation may not yield similar cash proceeds if preferential rights, debt or later financing change ownership economics.
Interactive exercise · Hypothetical fund
THINK LIKE A FUND.
Change the fund size, investment and ownership. Then ask whether a plausible exit outcome moves the needle for that investor. These are illustrative economics—not an estimate of fundraising odds or investor requirements.
YOUR ASSUMPTIONS.
Changing the currency changes only the display symbol, not an exchange rate. Values are denominated in the selected currency. All inputs and results stay in your browser.
One investment's contribution
WHO GETS WHAT?
Stake at exit
7.20%
Gross proceeds
€28,800,000
Return on check
19.20×
Fund size returned
0.48×
Progress toward gross proceeds equal to the fund's whole size (1×)
For this investment alone to gross-return the entire fund at the modeled exit stake, the company would need an equity exit of approximately €833,333,333. This is a pedagogical stress test, NOT a rule that every investment must return the fund.
Gross proceeds = exit equity value × final ownership. This is not cash distributed to LPs: it ignores fund fees, carried interest, follow-ons, liquidation preferences, taxes and the results of the rest of the portfolio.
Same company. Different fit.
FUND SIZE CHANGES THE CONVERSATION.
Imagine a company exits for €200 million in equity value and a VC owns 7% at exit. Its gross proceeds are €14 million. That is 0.28× a €50 million fund, but only 0.028× a €500 million fund. This comparison doesn't imply that one VC should invest and the other cannot—it illustrates how identical exit proceeds have very different importance to different portfolios.
Small fund · €50m
0.28×
One exit contributes 28% of committed fund size in gross proceeds.
Large fund · €500m
0.028×
Exactly the same €14m gross proceeds contribute 2.8% of fund size.
This is why investor targeting should consider check size, stage, fund size, ownership appetite, portfolio concentration and expected outcomes—not just sector labels. Some funds choose to target smaller stakes in exceptional companies; other funds have strict ownership policies. Ask rather than assume.
Investor qualification
SIX QUESTIONS BEFORE A FUNDRAISING PITCH.
Which fund are you investing from?
One VC brand may manage funds with different sizes, strategies and available capital. Ask which vehicle would write the cheque.
What is your usual first cheque?
Fund size and reserves influence how much a partner can allocate to one early investment.
What ownership do you need?
Ownership targets differ by stage and firm. Compare your proposed round dilution with the investor's objective.
How do you approach follow-ons?
An initial cheque can be only part of a fund's eventual exposure; pro rata participation and reserves matter.
What outcomes fit your strategy?
Understand whether the investor requires a globally scaled outcome or can back a smaller, capital-efficient business.
Where are you in the fund lifecycle?
A fund's vintage, investment period and liquidity horizon can affect timing and follow-on appetite.
Applied assignment
THE INVESTOR-FIT MEMO.
Select one real venture (your own or a publicly documented company) and two potential funds of different sizes. For each fund, state the likely cheque, desired ownership, relevant prior investments, follow-on strategy and outcomes that would make the investment meaningful. Use fund-specific evidence, not generic stage stereotypes.
- Model three exit values and two dilution paths using the calculator.
- Explain whether the capital strategy should target the smaller fund, larger fund, angels, public support or no equity funding.
- Separate known fund facts, numerical assumptions and questions still requiring a partner interview.
Deliverable: one page, one calculation screenshot or copied scenario, and a defended decision. AI may assist with arithmetic and research but must not invent fund criteria or answer the decision for you.
NEXT: THE CAP TABLE YOU ARE SELLING.
Funding success means little if licensing constraints, founder equity or option-pool mechanics make the next financing difficult. Study the university equity and IP guide as a complementary decision lab.
University Equity & IP guideSOURCES & LIMITATIONS.
Reference sources include a venture capital manager's explanations of fund structure and the original Startup Money teaching deck. Other fund-specific policies must be checked with the relevant manager. Figures on this page are hypothetical, not market averages. The model is a learning aid, not an actual investment distribution waterfall.
- Andreessen Horowitz — 16 Definitions on the Economics of VC
- Founder primer — How Venture Capital Funds Are Structured
- Startup Money — original 122-slide working deck
Last reviewed 14 October 2026 · For educational use, not investment, accounting, tax or legal advice.