Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Rolling Closes to Stay Flexible
Transcript
- Lucas: So we are deep into June 2026, and the market mood has shifted pretty sharply over the last week. The S&P 500 is down, growth stocks are getting hammered—NVIDIA alone dropped over 6 percent in five days. And for founders who were planning a traditional 18-month fundraise followed by a clean exit, that kind of volatility throws a wrench in the works. Luna: Right — and that's exactly where rolling closes come in. It's a tactic that's been around for a while, but it's really gaining traction now. Lucas: Exactly. For listeners who haven't encountered the term: a rolling close is when a startup doesn't close its entire funding round on one day. Instead, it brings in investors in tranches over weeks or months, often with the same terms but sometimes with slight adjustments. It gives founders the flexibility to keep raising while delaying a valuation mark. Luna: And in a market like this, where a 6 percent drop in a bellwether stock like NVIDIA can spook the whole venture ecosystem, that flexibility is gold. You don't want to be forced into a down round just because your one-day close happened on a red day. Lucas: Right. So let's talk about how it actually works in practice. A common structure is what's called a 'first close' and 'final close.' The founder sets a minimum amount they need to operate—say, $5 million—and once they hit that, they can start deploying capital. Then over the next three to six months, they continue bringing in additional investors at the same valuation. Luna: And the key is that the valuation is locked for the entire round. So even if the market dips further, later investors don't get a discount. That protects early investors from dilution and gives the founder a stable cap table. Lucas: But there is a trade-off. Some institutional investors dislike rolling closes because they want to see a fully committed syndicate before they wire money. They worry that if the momentum stalls, the founder might be left with an incomplete round. Luna: Which is why we're seeing this more in seed and Series A rounds, where the investor base is often more founder-friendly. Later-stage rounds still tend to favor a single close with a lead investor anchoring the deal. Lucas: Yeah. And there's a specific example from earlier this year that I think illustrates the strategy well. A company called Orbit AI—they're building an AI platform for supply chain optimization—they started their Series B in January with a target of $30 million. But instead of trying to close it all at once, they did a first close at $15 million in February, then a second close at $25 million in April, and they're still open for a final close. Luna: And that let them avoid what would have been a down round. Because in February, when they did the first close, the market was still pretty strong. But then by April, growth stocks had taken a hit. If they had tried to close the full $30 million in April, they might have had to accept a lower valuation. Lucas: Exactly. Instead, they locked in that February valuation for the whole round. The later investors—who came in April and May—paid the same price as the February investors. And the company got to keep its valuation intact. Luna: There's also a psychological benefit. When a founder can announce a first close, it signals momentum. Other investors see that someone has already done diligence and committed, which often makes them more comfortable jumping in. Lucas: Right. And that momentum can be self-reinforcing. Now, one thing I want to flag: rolling closes aren't just for avoiding down rounds. Some founders use them strategically to build relationships. Say you have a potential investor who wants to come in but needs board approval that only happens quarterly. A rolling close lets you slot them in when they're ready. Luna: If today was actually useful to you, the way these conversations stay ad-free is listener support. So if you are building or running something, and this kind of practical detail helps, you can buy me a coffee dot com slash fexingo. Lucas: That's a good point. It's a simple way to keep the show going without any corporate sponsorship. So back to rolling closes—another angle is how they interact with SAFEs and convertible notes. A lot of founders use rolling closes with SAFE notes because they don't have a fixed valuation, which gives even more flexibility. Luna: But that can get messy. If you have multiple SAFE investors coming in at different times with different valuation caps, the cap table can become a nightmare. And when you eventually do a priced round, converting all those SAFEs can lead to unexpected dilution. Lucas: Right. So there's a balance. Rolling closes with priced equity—like the Orbit AI example—are cleaner because the valuation is fixed. But for early-stage companies that don't have a clear valuation yet, SAFEs with a rolling close can be a pragmatic way to get capital in the door quickly. Luna: And the data suggests that rolling closes are becoming more common. According to a recent report from Carta, about 18 percent of priced rounds in 2025 had some form of rolling close. That's up from about 10 percent in 2023. Lucas: That's a significant jump. And I think it's directly correlated with market volatility. When the macro environment is stable, founders can plan a traditional roadshow and close in two weeks. But when you have days like we've seen this week—where the NASDAQ is down 5 percent in five days—that approach becomes risky. Luna: So what's the downside for founders? I mean, aside from the complexity of managing multiple closings. Lucas: The biggest downside is that it can create uncertainty for the company. If you're doing a rolling close, you don't know exactly when you'll have the full amount. That can make it harder to plan hiring or capex. Also, some investors will only commit if they know the round is fully subscribed. So if you're still open, they might hold back. Luna: And there's a signaling risk too. If your rolling close drags on too long, the market might interpret that as lack of demand. Especially if other startups in your space are closing rounds quickly. Lucas: Exactly. So the founder needs to be disciplined. Set a clear timeline for the round—say, six months maximum—and communicate that to investors. And don't let the round linger beyond that, because it starts to look desperate. Luna: Let's talk about the investor perspective for a moment. If I'm a VC, why would I like or dislike a rolling close? Lucas: From the VC side, there are pros and cons. On the plus side, a rolling close lets you get in early before the round is fully priced. You might get better terms or a larger allocation if you commit early. On the minus side, you're taking on more risk because the round isn't fully subscribed. If the company fails to raise the rest, you're left with a partially funded startup that might need to downsize. Luna: And some VCs just prefer the clean execution of a traditional round. They want to see a term sheet, a lead investor, and a closing date. Rolling closes can feel messy to them. Lucas: Right. But I think as the market becomes more volatile, we'll see more VCs becoming comfortable with rolling closes. It's a tool that aligns with the reality of fundraising in a choppy market. Luna: So what's the takeaway for founders listening? If you're planning a raise in the next six months, should you consider a rolling close? Lucas: I'd say it depends on your situation. If you have a strong base of existing investors who are willing to anchor the round, a rolling close can give you the flexibility to bring in new investors on your terms. But if you're approaching the market for the first time, or if you're in a hot sector where rounds are closing quickly, a traditional round might be simpler and faster. Luna: And if you do go the rolling close route, make sure you have a good lawyer who understands the mechanics. The legal documentation can be more complex, especially if you have multiple closings with different investor groups. Lucas: Absolutely. And I'd add: don't forget about the administrative burden. Each closing requires board approval, updated cap table, and investor communications. So factor that into your timeline. Luna: Final thought—given the market data we're seeing today, with tech stocks down across the board, it feels like rolling closes are likely to become even more common in the second half of 2026. Lucas: I agree. And for founders who are paying attention, this is a tool worth understanding. It might not be right for every situation, but in a market like this, flexibility is a competitive advantage. Luna: On that note, thanks for listening. We'll be back with another episode soon.