Once a VC raises his fund (or has a first closing), he has capital to deploy.  At this point, he enters the first phase of the fund life cycle: investing.

Typically VCs spend the first three to five years of a new fund investing in new companies.  The number of investments made in this period varies by the relationship between the size of the fund and the average amount of capital that is to be deployed in each company.  The length of the investment period varies by the relationship between the target number of investments for the fund and the number of investment professionals.

While funds typically don’t add new companies to the portfolio after this stage, it doesn’t mean that they have deployed all of their capital.  Typically VCs reserve capital for each company that they invest in so that they can provide each company with additional capital over time.  This enables the VCs to protect their ownership level of the companies and enables the companies to support future growth.

While the amount of capital deployed with new investments varies by fund and by stage, typically early stage VCs invest 20-30% of the capital reserved for a given company in the first round.  The best VCs have lots of ‘dry powder’ to help the entrepreneurs in the future.