Would you use the reserve at Series A?
Pro-rata rights give you an option. Compare the new evidence and the other uses of your remaining capital before you exercise it.
The question
Eighteen months later, MorrowDesk seeks $10 million at $40 million pre-money. Your seed fund owns 10% and has $2 million of unallocated reserve left. There is also a separate $1 million opportunity. Assume a later Series B sells 20% and you do not join it.
| Now | |
|---|---|
| Paying customers | 60 |
| MRR | $300,000 |
| Gross margin | 65% |
| Revenue from largest three customers | 45% |
| Runway before new financing | 9 months |
Invented data. The largest customer is 25% of revenue. The $2 million reserve is a remaining fund budget, not cash on MorrowDesk’s balance sheet.
- PartnerA $1 million check preserves 10% at Series A. A $2 million check buys 12% after Series A.
- Other dealA new seed company needs $1 million. It fits the thesis, but customer diligence is unfinished.
“Choose a reserve allocation. Explain the incremental return and the evidence you need.”
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A strong answer, step by step
Open each step in turn. This is one strong answer, not the only one.
Step 1: Calculate the check, not just the right
What would you do here? Open the move you’d make.
Preserve 10% with no new money because we have rights.
Tempting, but it misses something. A right allows a purchase. It does not prevent dilution by itself.
Calculate 8% old ownership plus the check divided by $50 million.
The strong move. A $1 million check adds 2%; $2 million adds 4%.
Commit the entire reserve because ownership always matters most.
Tempting, but it misses something. Ownership matters only together with price, outcomes and other uses of capital.
See how a strong candidate says it
“Keeping 10% at Series A costs $1 million. Investing $2 million raises the post-round stake to 12%.”
Why it works: The round sells 20%; old ownership falls to 8% before the new check.
Step 2: Price the incremental outcome
What would you do here? Open the move you’d make.
Apply the seed check’s 32× to the new check.
Tempting, but it misses something. The Series A check enters at a higher price. Its incremental return differs.
Compare total proceeds and ignore added capital.
Tempting, but it misses something. That makes a larger check look better even when its marginal return is weak.
Measure the $16 million incremental proceeds against the new $1 million.
The strong move. This isolates what the follow-on buys under the stated exit scenario.
See how a strong candidate says it
“After the later 20% dilution, a $1 million A check adds 1.6% at exit. At $1 billion that is $16 million, or 16× the new check.”
Why it works: The next dollar earns the later-round return, not the seed return.
Step 3: Compare evidence, not sunk cost
What would you do here? Open the move you’d make.
Back MorrowDesk because passing would admit the seed was wrong.
Tempting, but it misses something. A sound seed decision can be followed by a rational decision not to invest again.
Compare current evidence and outcomes for both uses of the next dollar.
The strong move. This treats both choices as new investments.
Use equal checks to avoid making a difficult choice.
Tempting, but it misses something. Equal allocation is still a decision. It needs evidence, not convenience.
See how a strong candidate says it
“MorrowDesk has paid growth, but concentration is still high. I would compare its retained cohorts with the new deal before using the second $1 million.”
Why it works: Past ownership does not grant priority over a better current opportunity.
Step 4: Keep the condition concrete
What would you do here? Open the move you’d make.
Commit $2 million now and inspect retention later.
Tempting, but it misses something. That spends all remaining flexibility before the central risk is tested.
Commit nothing under any condition.
Tempting, but it misses something. This ignores the paid growth and better delivery margin already observed.
Set a $1 million conditional allocation and compare the remaining dollar.
The strong move. The condition can be resolved through named evidence before signing.
See how a strong candidate says it
“I would reserve $1 million for pro-rata, subject to cohort and customer checks, and keep $1 million uncommitted while the other diligence finishes.”
Why it works: The choice preserves flexibility without treating a reserve as an obligation.
The answer, in short
- Decision
- Prepare a $1 million pro-rata check, conditional on customer and cohort diligence.
- Because
- It preserves 10% at A while leaving $1 million for another use; it does not remove later dilution.
- What would change it
- Weak renewals, worsening concentration or a better evidenced alternative would change the allocation.
Common traps
- Doubling down to defend the seed decision.
- Quoting seed returns for a higher-priced follow-on.
Check your answer
- Did I calculate the check for 10%?
- Did I isolate the 16× incremental scenario?
- Did I compare the next dollar with alternatives?
- Did I keep the commitment conditional on named evidence?
Last reviewed Nov 10, 2026