Venture capital funds work on a stark principle.
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Most of the investments in a fund won’t move the needle on its returns. One or two of its investments will transform it.
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That’s the power law, and it’s the assumption the whole model is built on. Outside of venture professionals and their own investors, it isn’t widely known. It’s not a secret. It just doesn’t come up in conversation with founders, because most investors don’t want to begin a relationship by explaining that the base case is your company not mattering a great deal to their fund.
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If that sounds harsh, it’s because it is. But it’s also an incredibly useful thing for a founder to understand about the investor on the other side of the table.
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What the power law actually does to your investor’s behaviour.
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It isn’t that a fund expects 90% of its companies to collapse. Plenty will trundle along, get acquired modestly, return the capital. The expectation is that they won’t be the ones that matter.
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So funds don’t deploy all their capital at first cheque. They hold a significant portion back – 50% or more – in reserve for “follow-on” rounds, and then they concentrate that reserve on a handful of companies. Time, introductions and attention follow the same pattern.
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Every fund is quietly running a sorting process from the very first investment, and follow-on capital deployment is where the sorting becomes visible to others.
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Why a lead investor’s judgement carries so much weight
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Lead investors see things other investors don’t. They hold the strongest information rights, which co-investors aren’t always granted. They usually take a board seat or an observer seat, which means they’re in the room regularly and watching how the team actually operates between the good months and the bad ones.
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The startups in our portfolio where we sit on the board, even as an observer, are the ones we have on speed dial. We text and speak regularly. We introduce them to co-investors and speak highly of them. We are invested in every sense of the word.
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That access is why the market reads a lead’s behaviour so closely. Anyone can form a view from a pitch deck. A lead has spent two years watching.
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Following the Leader
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When a lead backs a company in its next round, other investors treat it as real information. It says: I’ve seen this team up close for two years, and I’m putting more money behind what I’ve seen. Leading a bridge round, or exercising pre-emption rights to re-invest, sends the same message.
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And when a lead doesn’t follow on, the market reads that too. Often correctly.
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But not always, and this is where founders get stuck.
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A lead might not follow on because they’ve lost conviction. They might also not follow on because the fund is past its investment period, because its reserves are already committed elsewhere, because the round size or stage sits outside their mandate, because of ownership or concentration limits, or because of a conflict elsewhere in the portfolio. From the outside, all of those look identical to a loss of faith.
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For a founder, managing it in real-time is challenging at best.
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Ask before you need to know
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You can’t resolve this after the fact. You can only find out in advance how the decision will be made, and the time to ask is while they’re still trying to win the deal.
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Questions worth asking any investor, and especially a prospective lead:
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• How much of the fund is reserved for follow-on investment?
• How many of your portfolio companies have you already backed in a subsequent round?
• What proportion of the portfolio do you expect to follow on into?
• How many subsequent rounds do you typically participate in?
• Where are you in the fund’s life, and how long is the investment period?
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These are specific, and that’s the point. The answers tell you whether this investor will structurally be able to support you in 18 months, which is a different question from whether they like you now.
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A good investor will answer them. Their own LPs ask the same questions of them, in more detail, before committing a penny.
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Closing
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Every fund has a small number of companies it will fight for and a larger number it will politely support. You can’t control which one you turn out to be, and no investor will tell you at signing.
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But you can find out how that decision gets made, and what it would take to change it. Most founders never ask, because nobody told them it was a question they could and should ask.
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It is.
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Lucy Mortimer is a Founding Partner of Archipelago Ventures.

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