Portfolio Construction at the Seed Stage

Portfolio construction is the unsexy side of venture capital. It does not make headlines. Founders rarely ask about it. But it profoundly shapes how a fund behaves — how aggressively it invests, how it supports portfolio companies, and ultimately how much value it creates for founders and LPs.

At Nurauca Capital, we have spent considerable time developing our approach to portfolio construction for our seed fund. Here is how we think about it, and why.

The Core Trade-Off: Concentration vs. Diversification

Every seed fund navigates a fundamental tension: do you spread capital across many companies (reducing the impact of any single failure) or concentrate in fewer companies (allowing deeper engagement and larger ownership stakes)?

The math of venture returns is well-established: a small number of portfolio companies will generate the vast majority of returns. In a typical seed fund, 1–3 companies will account for more than 80% of the fund’s value. This power law distribution suggests that concentration — owning more of the companies that will generate the most value — is the right strategy.

But this logic has a flaw at seed stage. At seed, you have limited information. The companies that will generate the most value are not yet identifiable. If they were, they would already be valued much higher. The power law is determined by what happens after your investment, not before it.

Our Approach: Concentrated Quality + Meaningful Reserves

At Nurauca, we have chosen a portfolio construction approach that reflects our conviction-based investing style and our operator-focused value-add capability:

• Target portfolio size: 20–25 seed investments per fund
• Initial check size: $250K–$750K per company
• Target ownership: 8–15% at entry
• Reserve ratio: 40% of fund held for follow-on
• Follow-on strategy: Pro-rata rights exercised selectively in top performers

This approach reflects a deliberate choice: we prefer a smaller number of companies where we can be genuinely useful over a larger portfolio where we are only nominally present.

Why We Hold 40% in Reserves

The reserve ratio is the most consequential portfolio construction decision a seed fund makes. Reserved capital is how you maintain ownership in your winners as they raise larger rounds at higher valuations.

Consider a hypothetical: Company A raises a $1.5M seed round at an $8M post-money valuation. You invest $600K for 7.5% ownership. Two years later, Company A raises a Series A at a $40M pre-money valuation. Without pro-rata, your 7.5% dilutes dramatically. With pro-rata reserves, you can invest $1M in the Series A to maintain meaningful ownership.

The math is straightforward. The discipline required to actually hold reserves when you see compelling seed deals is hard. At Nurauca, we manage this by treating initial investments and follow-on reserves as separate allocation pools, reviewed independently by the partnership.

Selecting Which Companies Receive Follow-On

Having reserves is only valuable if you deploy them into the right companies. Our follow-on investment process is more rigorous than our initial investment process, which might seem counterintuitive. Why would you do more work for a company you already know?

Because the question changes. At seed, you are evaluating founder quality, market potential, and early signals. At Series A follow-on, you are evaluating whether what you believed at seed has proven out, whether the team has grown into the challenges, and whether the trajectory justifies the higher entry price.

We use three criteria for follow-on decisions:

1. Growth quality: Not just growth rate, but what is driving growth. Customer-led growth driven by real value creation is very different from marketing-driven growth or pricing changes.
2. Team development: Has the founding team built out its organizational capabilities in proportion to its ambitions? A founder who is still doing everything is a risk at Series A, not a feature.
3. Competitive positioning: Has the company’s differentiated position strengthened or weakened over the seed period? Companies that start with weak moats rarely build strong ones later.

The Role of Co-Investors

Portfolio construction is not just about how you allocate your own capital. It is also about how you think about the investors who will be alongside you.

At Nurauca, we have cultivated relationships with a small number of institutional co-investors whose investment theses complement ours. Sapphire Ventures is our primary growth-stage co-investment partner. We have worked with the Sapphire team to create a deliberately aligned pathway for our strongest portfolio companies: Nurauca leads or co-leads seed, and Sapphire has visibility to lead at Series A or B when the business is ready for institutional scale capital.

This co-investor alignment is not exclusive, and we encourage our portfolio companies to develop broad relationships. But having a trusted partner who can follow on with larger checks — and who already knows the founders through our shared diligence — meaningfully reduces friction at the critical growth stages.

What Founders Should Know

If you are a founder choosing between seed investors, here is what to ask about portfolio construction:

• How many companies are in your portfolio? How many deals do you do per year?
• What percentage of your fund is reserved for follow-on?
• How many of your portfolio companies have you followed on in?
• Do you have institutional growth-stage co-investors aligned with your portfolio?

These questions reveal how seriously an investor takes their ownership stake over time, and how much structural support they can provide as your company scales.

At Nurauca, we are proud to have exercised pro-rata in every portfolio company that has raised a Series A to date. That is not accidental. It reflects how we have built our fund from the ground up: with the conviction that our best companies deserve our deepest commitment.