When deciding if to raise a venture round, it’s critical to ensure your venture investor shares the vision for the company: both the product roadmap and the financial goals of the company.

Most founders never consider the impact on fund size on VC motivations. As long as there are enough reserves to invest as the company grows, a founder might think, that’s fine with me.

But this is naive. Fund sizes dictate a VC’s strategy. To achieve their target returns, a $50M fund and a $500M fund must pursue very different investment and management styles.

Let’s take a look at the economics of two hypothetical funds, a $50M and a $500M fund. Assuming each fund seeks to return three times the capital invested in 10 years to provide a good return for investors, the total value of the portfolios must be $150M and $1,500M respectively. The funds have different target ownerships and therefore different average investment sizes.

All this boils down to a target value of a company at exit. The larger the fund, the larger the exits must be for the venture investors to be successful.

The smaller fund a $150M exit fits the model. It’s a great outcome. But the same can’t be said for the larger fund, which seeks exits three times larger. VCs understand this math - it’s the same calculations they use to pitch potential investors. But it’s equally important founders understand the motivations and the goals of their investors, to ensure both are aligned.

Larger funds will push companies to pursue larger exits. When raising capital, ensure that your investors share the same vision and commitment to the product, but also verify that your target outcomes for the business are in the same ballpark and that you both define success in the same terms.