I’ve Changed My Mind. Early Stage Venture Funds of $100 Million or Less Should Hold Almost No Reserves for Follow-On.

Author: Hunter Walk URL: https://hunterwalk.com/2026/07/23/ive-changed-my-mind-early-stage-venture-funds-of-100-million-or-less-should-hold-almost-no-reserves-for-follow-on/ One-line: After 13+ years running Homebrew, Walk reverses his own prior belief that early-stage funds should hold 20-50% of capital in reserve for follow-on/Pro Rata — arguing the assumptions behind that “best practice” no longer hold.

Key claims

• The old case for reserves rested on five assumptions, all from an earlier venture era: picking insight from 12-24 months of insider data, a contractual Pro Rata advantage, pricing/market discipline from an independent Series A lead, historical data proving pro rata outperformance, and brand/signaling risk from skipping a follow-on check.
• Every one of those assumptions has broken down. Follow-ons now happen weeks or months after the early round with “not that many cards turned over”; funds get squeezed out of pro rata by crowded cap tables and pressure to minimize dilution; the arrival of dozens of new multistage firms underwriting to lower targets has turned pricing into “auctions, not valuations”; the historical data is too stale and incomplete to trust; and brand/signaling risk from a new firm leading a round is “neutral to negative,” not positive.
• The prescription: minimize reserves, evaluate every pro rata opportunity against a net-new investment, and assume most fund capital won’t go to follow-on — “get more shots on goal” instead.
• Three-way test for whether to still do the pro rata: (a) you believe in the company as much as the market does and the round is fairly priced → do the pro rata; (b) you believe in it less than the market (terms are “CRAZY”) → skip it, or use an SPV / let a dedicated backer fund it, and consider secondary selling later; (c) you believe in it more than the market → double down, even ahead of the round.
• Dilution matters less than it used to, because winner exits are bigger than ever and the wild growth in early-stage valuations means less dilution than in prior eras anyway.
• Recycling capital (getting to 100%+ invested) is offered as one practical way to “solve” the reserves question — Walk notes Homebrew got to 120%+ invested in each of its first two funds.

Notable quotes

“In the year of our lord 2026, and having now lived in the early stage venture world for 13+ years, I’m calling bullshit on basically every piece of this.”

“Get more shots on goal, so to speak, and see if you can catch more true outliers.”

“The dynamics start to look more like auctions, not valuations.”

“One way to ‘solve’ the reserves question is by getting to 100%+ invested. We got to 120%+ in each of the first two Homebrew funds!!”

How it connects

• Hunter Walk / Homebrew — the author’s own fund is the case study (120%+ invested in its first two funds).
• Pro Rata — this essay is a direct, contrarian counterpoint to the traditional reserves-for-pro-rata logic: where Pro Rata documents SignalRank’s thesis that unexercised pro rata rights represent billions in left-on-the-table value, Walk argues the reserved-capital version of that instinct is now often the wrong trade for a sub-$100M fund.
• SPV — offered as the structural alternative to reserved fund capital when a fund believes in a company less than the market does.
• Venture Capital — a fund-construction argument about how early-stage capital should be allocated as the market has shifted toward multistage firms and auction-like pricing.