Entering your investment strategy

How to set your investment strategy - new/follow, single or multi-stage, and ownership - in the venture capital models

A fund's capital deployment splits between new investments (the first check into a company) and follow-ons (additional checks into companies you've already backed). Each Hemrock VC model handles this differently, from a single split percentage to multi-stage graduation tracking. Pick the model that matches the fidelity you need.

Fund Economics Tool

The Fund Economics Tool is the simplest of the three. One set of inputs governs the new vs. follow-on split for the whole fund.

On Get Started:

E26: % Allocation to New Checks. Default is 100% / 0% — every dollar goes to first checks. Allocation to Follow-ons is 1 - 100%.
E27 / F27: Average Check Size for each bucket. Default is $750k for new, $0 for follow-on, but that is merely a default and should be changed to reflect your strategy.
E28 / F28: # of checks (formula, derived from allocation × invested capital ÷ average check size).

To model a fund that reserves capital for follow-ons, change E26 to your target split (e.g., 60% / 40%) and set E27/F27 to your typical check sizes. The model uses these to compute total check counts, but it does not track which companies receive follow-ons. For that, you need the flagship Venture Capital Model.

The Return Assumptions then allows you to set the average outcome:

B35-B38: Input label for type of outcome, commonly used for Writeoff, Small, Medium, Large
E35-E38: Input % of Invested Capital per outcome
F35-F38: Calculated # of investments per outcome. Note, this model does not assume the average capital invested per outcome varies. So, if you are doing follow-ons, this assumes that your allocation of follow-on capital follows new capital.
H35-H38: Input average holding period, in years, from entry to exit. This is only used for the IRR approximations.
I35-I38: Calculated percentage of exit proceeds per outcome.

When this is enough: aggregate sizing exercises, fund construction sanity checks, "what does X fund size + Y check size look like." When it isn't: you need to reason about reserve discipline at the company level, expected ownership at exit, or which stages your follow-ons land in.

Venture Capital Model, Quarterly Forecast

The Venture Capital Model, Quarterly Forecast offers a more detailed approach to modeling portfolio construction than the simple Fund Economics Tool, without the structure of the average cap table approach in the flagship Venture Capital model. In this model, you model fund investments by type of investment by setting the allocation of fund capital to each type of investment and setting the initial investment, follow-on investment, and exit value per type of investment.

By default the types of investment are set to outcomes (Fail, Low, Medium, High); this could be used to set the types of investments to strategies (e.g. geographies, industries, Seed/Series A) but that would lose detail in the return assumptions.

On Get Started, you first set the allocation of capital to each type of investment and the initial check size:

E38-G38: Input % Allocation of Capital to each type of invesment (column H is calculated)
E48-H48: Average initial investment (new check), calculated from two lines below
E49-H49: Input postmoney valuattion
E50-H50: Input Ownership %, at initial investment

Then you have multiple sections to detail the optional follow-on strategy. The first two follow-on rounds are done in detail. You will want to set these assumptions regardless of whether you are investing in the rounds or not, as they contribute to the overall dilution you forecast, and impact proceeds.

E53-H53: % of Initial Investments to Participate in Prorata
E54-H54: Follow on Investment Amount
E55-H55: Time from Initial Investment to Follow on Investment (quarters)
E56-H56: Postmoney Valuation
E57-H57: Dilution from Round (from all investors)
E58-H58: Dilution from New Option Pool
E59-H59: Ownership % per company followed on, post follow on
E60-H60: Ownership % per average initial investment, post follow on round

And then the second follow-on strategy follows the structure of the first. The assumption for additional dilution is important:

E73-H73: Additional Dilution from Second Follow on round to Exit. This sets the amount of additional dilution you will incur before the exit. This allows you to approximate the dilution from additional funding rounds before the exit assumptions.

At exit, you can set the average exit value per invesetment type (row 76) and average holding period (row 77) for the time from initial investment to exit *for each column of investment type.

The portfolio construction and return assumptions are calculated from the above assumptions.

The quarterly Forecast sheet shows the deployment of capital from the investment strategy. New checks start in Q1 and run for the duration of the new-investment period; follow-ons get paced based on company holding periods. To run a different reserve strategy in a side scenario, edit Get Started 2 or Get Started 3 and compare on the Scenarios sheet.

When this is enough: you're running one strategy, you can summarize it with average check size and a return distribution. When it isn't: you have a thesis about hitting different stages with different check sizes, or you want to defend a strategy by stage to LPs.

Multi-entry stage modeling

The Quarterly Forecast doesn't model the entry stage explicitly. Investments are characterized by check size and return tier, not by what round they enter at.

To approximate a strategy, you tune three things on Get Started:

D27 / E27: Average Check Size for new and follow-on. A Seed-stage strategy might be $500k / $0; a Series A strategy might be $2M / $0; a multi-entry mix would land somewhere in between.
R31-R39: Power-law Return Assumptions — % of capital, gross multiple, holding period per tier (writeoff / small / medium / large). Set these to match the distribution you'd expect at your entry stage. Earlier-stage entries justify higher writeoff % and longer holding periods; later-stage entries do the opposite.
D17 / D19: New Investment Period and Fund Operations Period (in years). Earlier-stage funds typically hold longer.

This works for sizing exercises and quarterly cash flow forecasting. It does not let you say "30% of my capital enters at Series A and the rest at Seed" with separate check sizes and return profiles. For that, use the flagship model.

Venture Capital Model

The flagship Venture Capital Model model lays out every round and how capital flows from one to the next through a multi-stage graduation to model the average cap table of your average investment and how it changes over time.

On Get Started, in the Investment Strategy and Expectations section (R34-R70):

E39-J39: % Allocation of Capital to entry at each stage. Default is 100% to New (Seed). Set 70% Seed / 30% Series A to enter at both stages, etc.
E44-J44: % Graduate to next round. Defaults: 30% / 50% / 50% / 60% / 70% / 0%. This is the chain that determines which companies get follow-on checks.
E68-J68: Average invested per new investment at each stage. This, combined with the % of Allocation of Capital, sets a multi-entry stage modeling approach detailed below.
E69-J69: Post-money valuation per round. Defaults $6M / $18M / $54M / $162M / $324M / $648M, but change to fit your expectations and your market.
E70-J70: Dilution from Round from All investors. Sets the total amount raised in the round, whether you invest or not.

You can set additional dilution and ownership from options and share grants:

E73-J73: Dilution from new option pool. Assumes option pools are created to decrease the premoney and push the dilutive impact of options on shareholders prior to each round.
E74-J74: New Extra Ownership % from Grants, etc., per stage. Not common, but can be used for equity ownership from grants, other agreements without requiring investment to purchase (common example are venture studios that get an ownership % from incubating, separate from investing)

Follow on strategy is then set by a few lines of calculations and inputs:

E74-J80: Prorata opportunity, New Investment, per round. Calculated using ownership % prior to the round * size of new round; size of new round is calculated as % dilution (i.e. the % of the company sold) * the postmoney valuation assumed. Structural assumption is that if you do not participate in a follow round, you do not get future prorata opportunities.
E81-J86: Follow Investment, New Investment, per round. This is an input for this specific first check strategy. The section above calculates the prorata opportunity, this line will assume you do your prorata if you assume you are doing them in the section below. This is where you can input your specific prorata strategy and overwrite if it varies from the auto calc (e.g. if you want to assume super prorata or assume you do checks in only some investments)
E87-E92: % Potential Follows Followed on, New Investment, per round. By default this assumes you do zero follow ons, you can directly input over the formula to adjust the overall capital allocation

Return Expectations (R98-R130) and Fund Performance (R133-R153) recalculate from these inputs. Edit them on Get Started, never on the output rows.

Multi-entry stage modeling

The allocation of capital to entry at each stage allows the model to be used for modeling multi-stage entry with different follow-on strategies per first check.

The key rows are 39 and 68:

E39-J39: % Allocation of Capital to entry at each stage. The values must sum to 100%. Set D39 = 100% and the rest = 0% for Seed-only. Set D39 = 50%, E39 = 50% for an evenly split Seed + Series A strategy. D39 should be the earliest stage you invest at, not the first stage a company raises (meaning, if you focus on Series A, set the naming of the rounds so that E37 is Series A, and adjust the round names accordingly, you don't need to set the assumptions for what happens before you invest, only from when you invest going forward).
E68-J68: Average invested per new investment at each stage. As noted, this allows you to set the initial check size for each entry point.

What changes downstream:

D44-J44: % Graduate to next round. The graduation chain runs from whatever stages you enter at. Companies entering at Series A skip the Seed → A graduation step.
D69-J69: Post-money Valuation per round. Drives ownership and dilution per stage.
R45-R66 (Graduation, exit counts, ownership tracking): all formulas. They recalculate from the inputs above.
R98-R130 (Return Expectations): per-round exit multiples, proceeds per investment, ownership at exit net of dilution.
R133-R153 (Fund Performance): TVPI / DPI / IRR roll up across the entry mix.

Three common multi-entry patterns and how to set them up:

Seed-only fund. E37 = "Seed", E39 = 100%, all other entry columns = 0%. Set E68 to your typical Seed check, D44 to your expected graduation rate. The rest of the row applies to companies that graduate, not to new entries.

Series A specialist. E37 = "Series A", E39 = 100%, all other entry columns = 0%. Set E68 to your Series A check size. The Seed column (D) is unused for entry but the graduation rate at D44 still matters if you ever back a company that has previously raised a Seed via your portfolio's pro-rata — typically not relevant for a pure A specialist. Adjust the round labels accordingy.

Hybrid Seed + Series A fund. Split E39 and F39 to your target mix (e.g., 60% / 40%). Set check sizes per stage. The model treats the two streams independently — Seed-entered companies graduate through the chain, Series A-entered companies start at Series A. Combined Fund Performance reflects both.

Edge case: if your strategy includes opportunistic later-stage checks (e.g., 80% Seed + 20% Series C), you can set F39 (Series B) to 0%, G39 (Series C) to 20%, and skip the intermediate stages. The graduation chain handles companies that originate at Seed and reach Series C separately from new entries at Series C.

Picking the right model

Use the Fund Economics Tool when you want to size a fund quickly. Use the Quarterly Forecast when you need a J-curve and quarterly call schedule but a simple split is enough. Use the flagship Venture Capital Model when you need to defend reserve assumptions, graduation rates, or specific ownership-at-exit math to LPs.