Can this seed investment return a $100 million fund?
A billion-dollar outcome can return less than the fund. Carry ownership through each financing before you name the upside.
The question
You invest $2 million in MorrowDesk at $18 million pre-money. Two future rounds each sell 20% of the post-money company. For this exercise, all ownership is fully diluted and all shares have the same exit economics.
| Pre-money | New money | Post-money | |
|---|---|---|---|
| Seed | 18 | 2 | 20 |
| Series A | 40 | 10 | 50 |
| Series B | 80 | 20 | 100 |
Invented data. New money includes any follow-on check by your fund. No option-pool changes, fees, carry, debt, preferences, taxes or other rounds. A $1,000m exit is a scenario, not a forecast.
“Compare no follow-on with full pro-rata. What exit would return the fund?”
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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: Get the first stake right
What would you do here? Open the move you’d make.
Divide the check by $18 million pre-money.
Tempting, but it misses something. That gives 11.1%, but the $2 million also enters the company. Use post-money.
Divide $2 million by $20 million post-money.
The strong move. This gives the correct 10% fully diluted stake under the stated assumptions.
Use the headline valuation without identifying pre or post.
Tempting, but it misses something. The distinction changes the ownership you buy.
See how a strong candidate says it
“The seed stake is $2 million divided by $20 million post-money: 10%.”
Why it works: The check buys a share of the company after the money arrives.
Step 2: Carry dilution through both rounds
What would you do here? Open the move you’d make.
Keep 10% because the fund led the seed.
Tempting, but it misses something. Leading a round does not prevent dilution in later rounds.
Subtract 40 percentage points.
Tempting, but it misses something. Each 20% dilution applies to the remaining stake: 10% × 80% × 80%.
Apply both 20% dilutions and compare proceeds with the fund.
The strong move. The result exposes why the size of the exit alone is insufficient.
See how a strong candidate says it
“Without follow-on, 10% becomes 8%, then 6.4%. A $1 billion exit returns $64 million: 32× the seed check, but 0.64× the fund.”
Why it works: A high investment multiple and a fund-returning outcome are different claims.
Step 3: Price the right to keep ownership
What would you do here? Open the move you’d make.
Assume pro-rata rights preserve 10% for free.
Tempting, but it misses something. Rights are the option to invest. You still need $3 million of new capital.
Invest $1 million at A and $2 million at B to keep 10%.
The strong move. Ten percent of each round’s new money preserves the same ownership.
Spend the original $2 million again at both rounds.
Tempting, but it misses something. The required check depends on ownership and new money, not the original check size.
See how a strong candidate says it
“Pro-rata costs $1 million at A and $2 million at B. Total cost becomes $5 million and ownership stays 10%.”
Why it works: Pro-rata is a new investment at each round’s price.
Step 4: Solve for a fund-returning exit
What would you do here? Open the move you’d make.
Call every billion-dollar exit a fund returner.
Tempting, but it misses something. At 6.4% ownership, it returns $64 million of a $100 million fund.
Use $100 million divided by final ownership for each plan.
The strong move. The two plans require different exits because they retain different stakes.
Choose pro-rata solely because its exit target is lower.
Tempting, but it misses something. It consumes more capital. The next check still needs an independent investment case.
See how a strong candidate says it
“No follow-on needs $1.5625 billion to return $100 million. Full pro-rata needs $1 billion, with $5 million invested.”
Why it works: This states the target without claiming the company will reach it.
The answer, in short
- Decision
- At a $1 billion exit, no follow-on returns 0.64× the fund; full pro-rata returns 1.00×.
- Because
- The second plan keeps 10% but raises total invested capital from $2 million to $5 million.
- What would change it
- A different financing path, option-pool change or exit scenario. Recompute before deciding.
Common traps
- Confusing investment MOIC with a fund multiple.
- Treating pro-rata rights as free ownership.
Check your answer
- Did I use post-money for the seed stake?
- Did I apply dilution sequentially?
- Did I include both follow-on checks?
- Did I solve the fund-returning exit for both plans?
Last reviewed Nov 10, 2026