Dear SaaStr: What’s a Big Check for a VC Investor?

Dear SaaStr: What’s considered a large amount of money for an investor?

The answer isn’t obvious from the outside. And it’s something founders should know. Is $1m a lot? $100k? $20m? It really varies by VC and by fund.

A rough answer is investing more than 1.5%-2% of an individual fund into one deal is a “lot of money” for most professional investors.

2% is a pretty standard target for most core VC investments, and more than that starts to become risky. And 5% or more of the fund into 1 deal starts to become a “this investment has to work or I might lose my job” investment.

So take say, a $150m venture fund. In that case:

A $250k or $500k investment out of $150m fund is immaterial (0.1%-0.3%). It can generally be done quickly with limited diligence. A $2m-$4m investment is the sweet spot. That’s 1.5%-2.5% of the fund. Enough to move the needle, but not so much it can’t be written off. A $7m-$8m+ investment can work if there is “high conviction” in the investment, but is stressful, and most VCs would prefer to get there over 2 rounds. That’s 5%+ of the fund, so deferring some of the investment until the next round can offset some risk. Anything more than this is super risky and rare for a VC fund.

Do this quick math to know where you stand with a VC.

You can also see why the size of many seed VC funds especially have grown over time. As valuations have gone up and the overall round sizes has gone up, you just need a bigger fund to make sure each individual initial check isn’t more than 1.5%-2% of the fund.