- Short Description:
- For a given follow on strategy, and the planned number of portfolio companies, the check size of an investment is almost mathematically dictated by the total fund size. In a way, the number of portfolio companies is often closely related to check size, because stage of company and level of portfolio support expected are related to check the size. With larger check sizes the level of involvement in the company goes up and the number of companies available for investment goes down, both of which drive down the number of portfolio companies. Taking all this into account, if one believes that fund size generally drives many key strategic decisions, then to stick with the same strategy. Therefore, some GPs make an explicit choice to keep subsequent funds the same size. While AUM does grow with additional funds, it does not grow as much as with a Grow AUM approach.
- Benefits:
- GPs get the benefit of clarity and focus on a particularly strategy.
- Deepening relationships with upstream and downstream investors and other ecosystem players
- Time to hone the craft for many years at the same stage of an investment
- Brand clarity – the market can be clear on the strategy and not be confused by new behavior.
- Trade-offs:
- GPs given up some ability to increase management fees for themselves and for spending on additional support or staff. Particularly for smaller funds, this can require the GP to do operational, administrative or financial tasks which can feel repetitive or not directly value-added.
- Requires discipline for a successful manager as they will have opportunities to invest with larger checks and may feel the pull of wanting a larger fund to do so.
- Examples:
- K9
