The essential building blocks of a VC fund model - Part 2
by David Cruz e Silva, an operator turned angel LP and founder of eu.vc and Marc Penkala General Partner at āltitude
If you haven’t read part 1, you can do it here.
The Assumption Sheet
This is the brain of your entire model - the final piece of the puzzle but the place where you should start. It’s not just another tab in a spreadsheet; it’s the foundation that feeds every other component.
Here, you lay out the core assumptions driving your fund, such as:
🔹 Fund Parameters
🔹 Hard Cap
🔹 Power Law Dynamics
🔹 Teasers & Initial Positions
🔹 Fund Returner Potential
You’re not just plugging in numbers- you’re building the logic behind your fund’s entire strategy.
Model Every Scenario
Your fund isn’t just one bet- it’s a set of interlocking variables. That’s why you need to model every possible outcome, including:
✅ Equity position without follow-on
✅ Equity position with follow-on
✅ Equity position without follow-on + Power Law effects
Every decision impacts the other variables:
Core Assumptions – Fund size, soft cap, deployed capital- it’s not just about how much you have, but what assumptions are shaping your strategy.
Hurdle Rate vs. Liquidation Preference – This choice influences everything: carried structure, expenses, follow-ons- you name it.
Investment Strategy & Follow-Ons – How many investments? How many follow-ons? This is where you set the stage for how capital gets deployed.
And if you’ve made it this far, you’re probably feeling overwhelmed and overloaded- and as much as we want to feel sorry for you- the reality is: We DON’T- this is a necessary part of building the best portfolio ou there and simply not being another statistic.
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Portfolio Construction
Portfolio construction is the visual roadmap that shows how and when you’ll deploy your capital. Think of it as creating a timeline that aligns every investment stage with your overall strategy.
Start with your teaser checks period. These are your smallest checks, deployed to test the waters, explore deal flow, and establish a presence
Next, move to the pre-seed investments timeline. These checks should be deployed quickly and aggressively. Why? Because these assets need the longest time to mature, and the sooner you start nurturing them, the better chance they have to grow into something significant.
Then, draw up a timeline for your seed investments. This is the heart of your portfolio construction timeline, and it’s where most of your deployment should happen.
Once your timeline starts to take shape, you move into the follow-on period. This is where you identify the winners and double down. Allocate resources to the companies with the highest growth potential, making sure your bets are concentrated where they count most.
Turn Strategy into Numbers
Once you’ve outlined these four aspects, it’s time to put numbers to the plan. Model your timeline in detail- when will teaser checks be deployed? What’s your maximum exposure at each stage? Don’t be vague here; this is where you set the foundation for your portfolio decomposition.
Getting granular? Yeah, it might seem like a pain, but you either learn how to tackle it, or you settle for a portfolio that just gets by, instead of one that truly crushes it.
This phase is where you lay down the real work, and trust me, it’ll pay off. If you want to build a portfolio that doesn’t just perform but actually stands out, you have to get into the nitty-gritty.
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Portfolio Decomposition
Think you went granular in the construction phase? Think again.
This is where you take all the groundwork you’ve laid and simulate the future of each asset. Write-off or winner? Follow-on or exit? Here, you’re not just showcasing your investments but simulating their journey over the term of the fund. Will they thrive, stagnate, or crash and burn?
Spoiler alert: You need to plan for all of it.
Take every single company in your portfolio (yes, every single one) and project what happens: Will it deliver on its potential, or does it become a write-off? Layer in KPIs like NAV, TVPI, IRR and MOIC to understand how they’ll compound over the years. Color-code for clarity: red for losers, green for winners.
It’s not just about predictions- it’s about giving yourself a clear view of where value is created (or lost). And moreover, get a feeling whether your exit assumptions are realistic, in terms of amount of exited startups, exit multiples and timeframes.
And yes, you might wonder: Shouldn’t we stay flexible? What if market conditions shift? You’re absolutely right- we’re ALWAYS talking about flexibility and that’s why this step is about preparing for it. Build a spreadsheet that’s easy to tweak and adapt.
Remember: your portfolio won’t grow in a straight line, so add a variable that allows you model out multiple scenarios without having to create a new spreadsheet every single time.
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Compile everything through the fund’s timeline and ask yourself: “I’ve deployed €X. How does that translate into NAV, TVPI, and beyond?”
Wrap it all up with an exit tracker. How realistic are your numbers? Are you on track to meet your goals?
Keep in mind that constant self-assessment. Build a flexible spreadsheet that can adapt to the twists and turns of reality. Your portfolio won’t follow a straight line, so model every possible scenario before it surprises you.
Stay tuned for part III, where we’ll dive deep into the last three building blocks.
Ready to take your fund modeling to the next level? Join the EUVC Community that offers an exclusive experience tailored for VCs and learn more about fund modeling from our learning sessions on:
Essential building blocks
Assumption sheet construction
Portfolio construction & decomposition
