Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / How Startups Are Using Rolling Funds to Keep Investor Capital Flowing
Transcript
- Lucas: So rolling funds are having a moment. We've seen a 40% increase in formations this year alone, and this week, a group of Snap alumni just unveiled a fund called Ghost Angels that's structured exactly this way. Luna: Forty percent — that's huge. But for listeners who might not be deep in fund mechanics, what exactly is a rolling fund? Lucas: Right. A rolling fund is essentially a continuous vehicle — instead of a traditional venture fund that raises a fixed amount and then deploys it over three to five years, a rolling fund accepts capital from investors on a recurring basis, often quarterly. The fund doesn't have a hard close. It keeps rolling. Luna: So it's like a subscription for startup investments. Investors commit to putting in, say, $10,000 every quarter, and the manager keeps deploying. Lucas: Exactly. The model was really popularized by AngelList a few years back, but now we're seeing established operators — like these Snap alums — use it as their primary structure. Ghost Angels plans to write small checks into early-stage consumer and enterprise startups. Think $25,000 to $100,000 per deal. Luna: That's a pretty small check size for a fund. But if you're rolling, you can build a portfolio over time without the pressure of deploying a giant fund in two years. Lucas: Exactly. And that's the key advantage for managers. Traditional venture funds face what's called the J-curve — early years are all negative returns until the exits start coming. Rolling funds smooth that out because you're constantly raising and deploying. You never have a 'vintage year' problem. Luna: What's the downside? I mean, if I'm an LP, I'm committing to a stream of capital without knowing exactly what deals are coming. Lucas: That's the tradeoff. LPs are effectively giving a blank check for the manager to deploy over time. Some love it because they trust the manager's eye. Others prefer the traditional model where they can evaluate each fund's specific strategy before committing. Luna: And for startups receiving that capital? Does it change anything on the founder side? Lucas: It does. When you raise from a rolling fund, you're often getting a smaller check from a larger group of investors. The Ghost Angels fund, for example, has over a hundred limited partners. That means more voices, potentially more noise, but also a broader network. Luna: I can see why that appeals to operators turned investors though. They get to keep their finger on the pulse while deploying capital steadily, not just during a fundraising sprint. Lucas: And importantly, the regulatory environment has made this easier. In the US, the SEC's changes to the accredited investor definition and the rise of Regulation D 506 allow for general solicitation, which is perfect for rolling funds that need to continuously attract new LPs. Luna: So this isn't just a fad. It's a structural shift in how early-stage capital flows. Lucas: I think so. Look at the data: in 2024, rolling funds accounted for about 12% of all venture capital raised. This year, it's projected to hit 18%. That's significant growth in a market that's otherwise been cautious. Luna: And the Snap alums are a good signal. If experienced operators are choosing this structure, it legitimizes the model for others. Lucas: They're also signaling a shift toward smaller, more frequent investments. The old VC model was about placing big bets. Rolling funds let you place lots of small bets, which can be more capital-efficient for early-stage investing. Luna: Right. Because at the seed stage, you're often wrong. Better to spread risk across many small positions. Lucas: Exactly. And that's why we're seeing more micro VCs adopt this. A rolling fund of $10 million can be deployed over three years, writing 50 to 100 checks. That's a very different risk profile than a traditional $100 million fund writing 20 checks. Luna: What about returns? Has anyone benchmarked rolling fund performance yet? Lucas: There's not a ton of data because most rolling funds are still young. But early indicators from AngelList and other platforms suggest that top-quartile rolling funds are performing comparably to top-quartile traditional funds. The difference is in the fee structure and the liquidity profile. Luna: Fees — that's another big topic. Rolling funds typically charge a management fee on the committed capital each quarter, so the manager gets paid as they go, not just on the total fund size. Lucas: Right. And that aligns incentives better in theory. If the fund isn't performing, LPs can just stop their subscriptions. There's no capital lockup. That's a huge shift from traditional VC where LPs are in for ten years. Luna: So the power dynamic flips a bit. LPs have more control. That could force fund managers to be more disciplined. Lucas: Or it could lead to short-termism. If LPs can pull capital at any time, managers might avoid longer-gestation bets. That's the concern. Luna: But for startups, having a rolling fund as an investor might actually be a positive signal — it means the investor has a steady stream of capital to follow on. Lucas: That's a good point. In a traditional fund, once the fund is fully deployed, there's no more capital for follow-ons unless they raised a separate vehicle. With a rolling fund, the manager can keep investing as long as LPs keep committing. Luna: So a founder could get a $50,000 check at seed, and then another $50,000 at Series A from the same fund. That continuity is valuable. Lucas: Absolutely. And that's exactly what Ghost Angels is planning. They want to be a long-term partner, not just a one-time check writer. Luna: I think this model is going to keep growing, especially as more angel investors want to deploy capital without the overhead of managing their own fund. Lucas: Before we wrap, I want to mention something. If these conversations are useful for what you're building or running, we keep this show ad-free and listener-supported. If today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. We appreciate it. Luna: Yeah, it really helps us keep the lights on and bring you these deep dives. So thanks to anyone who contributes. Lucas: All right. So rolling funds — they're not replacing traditional VC, but they're becoming a real alternative. And with operators like the Snap team jumping in, expect more innovation in how early-stage capital flows. Luna: Next time you hear about a fund that's 'always open,' you'll know what that means. Lucas: Exactly. For The Series A Show, I'm Lucas. Luna: And I'm Luna. See you next time.