A working company, a large pro-rata cheque and a reserve that could only stretch to one of three requests that quarter.
This is an anonymised composite, not a report about a named company or person. The situation and numbers are typical rather than reported.
Three years earlier the investor had put 250,000 into a seed round at a 12,500,000 post-money valuation, taking 2%. The company now had 6,000,000 of ARR growing 90%, net revenue retention of 121%, a burn multiple of 1.4 and 22 months of runway. The Series B was 20,000,000 at a 100,000,000 post-money valuation, and the investor's pro-rata allocation was 2% of the round: 400,000. Their remaining follow-on reserve was 500,000, and two other portfolio companies were expected to raise within six months.
The pro-rata was affordable in isolation and not affordable alongside everything else the reserve was meant to cover. Exercising it in full would leave almost nothing for two companies whose rounds had not yet been priced.
Exercise the full 400,000 pro-rata, take a partial allocation, or pass and accept dilution from 2% to 1.6%.
The investor applied the fresh money test: would they invest 400,000 in this company at a 100,000,000 post-money valuation as a new investor? With 121% net revenue retention, a 1.4 burn multiple and 22 months of runway, they concluded yes. They exercised the full pro-rata, and wrote down that the two upcoming rounds would be funded only if those companies met the same standard - which, they noted, neither currently did.
The company was acquired four years later for 310,000,000. Further dilution had reduced the investor's holding to about 1.7%, worth roughly 5,270,000 on total invested capital of 650,000 - about 8.1x. Of the two other companies, one raised a bridge the investor declined and later wound down; the other did not raise again. The reserve decision looked correct, though the investor recorded that they could not know how the two declined companies would have performed with support.