Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / How Startups Are Using Rolling No-Cap Notes in Mid-2026
Transcript
- Lucas: So it is mid-July 2026, and if you've been watching the markets lately, you've probably noticed that high-growth tech stocks are having a moment. Apple, ticker symbol a a p l, is up nearly four percent over the last five days. Coinbase, ticker c o i n, up five percent. But there's a quieter story underneath that market optimism, one that's reshaping how early-stage startups actually raise money. Luna: You're talking about the rise of rolling no-cap notes. I've seen them pop up in a bunch of deal memos recently. What's the big idea? Lucas: Exactly. So a rolling no-cap note is exactly what it sounds like. It's a convertible note — a debt instrument that converts into equity at a future round — but with no valuation cap. And it's 'rolling' in the sense that the round stays open for a period of time, typically four to eight weeks, and the founder can keep accepting money from new investors throughout that window. Luna: Right, so instead of setting a hard close at, say, two million dollars raised, you just keep the door open. Investors come in at different times, but they all get the same terms? Lucas: Essentially, yes. The note typically has a discount rate — often fifteen to twenty percent off the next round's price — and a maturity date, but no cap on the valuation. That's the key difference from a traditional cap note or a SAFE with a cap. Founders like it because it delays the valuation conversation. You don't have to negotiate a number when you're pre-revenue or pre-product-market fit. You just say, 'Invest now, and you'll get a discount when we do the Series A.' Luna: And investors are okay with that? I mean, no cap means no ceiling on what they convert at. If the company blows up, they could end up paying a much higher effective price. Lucas: That's the trade-off. But look at the market context. We're in a period where the NASDAQ is near all-time highs, and the big tech names are rallying. Investors have a lot of capital to deploy, and they're seeing early-stage as a way to get in on the next wave before valuations get priced in. The rolling structure also creates a sense of momentum. Founders can say, 'We've already raised six hundred thousand from a couple of angel investors, and we're keeping the round open for another three weeks.' That FOMO factor is real. Luna: It's almost like a mini IPO roadshow, but for pre-seed. I've seen a startup in the AI space do this. They raised eight hundred K over six weeks, no cap, twenty percent discount, and then used that to hit a key product milestone before raising a priced round. Lucas: That's a perfect example. And the interesting thing is that this structure is particularly popular among startups that have some traction but aren't ready for a full seed round valuation. Think of it as a bridge between a friends and family round and a proper institutional round. It gives you a bit of runway to build your metrics. Luna: What about the downsides? I've heard founders worry about signaling. If you raise on a no-cap note, does that look weak when you go to VCs later? Lucas: That's a real concern. Some VCs might interpret a no-cap note as a sign that the founder couldn't get a priced round done. But honestly, in this market, it's becoming so common that it's almost a neutral signal. The bigger risk is dilution. Without a cap, early investors get a discount, but they don't have a valuation floor. If the Series A comes in at a very high valuation, their discount might not compensate for the risk they took early on. Luna: So it's a bet on the company's trajectory. Investors who put money into a rolling no-cap note are essentially saying, 'I trust the founder to grow this thing fast enough that my discount will still be meaningful.' Lucas: Exactly. And we're seeing this in sectors like AI and biotech, where the time to value creation is long and uncertain. In those cases, a cap might actually be harmful because it forces a valuation too early. The no-cap structure gives everyone flexibility. Luna: Let's talk about the mechanics. How do founders actually execute a rolling note? Is it on a standard SAFE or a convertible note template? Lucas: Most are using the Y Combinator SAFE, but modified. The standard SAFE has a cap and a discount. With a rolling no-cap note, you remove the cap and keep the discount. Some founders also add a 'most favored nation' clause, so if later investors get better terms, earlier ones get those terms too. That protects the early backers. Luna: And the rolling part — is that just a matter of saying the round is open until a certain date? Or is there some legal structure? Lucas: It's mostly operational. You set a deadline in the note itself — 'this offering expires on August 15, 2026' — and you can accept investments until that date. The key is that all investors sign the same agreement. They don't get different terms based on when they invest, other than maybe a slightly different conversion discount if you tier it, but most keep it uniform. Luna: So it's simple. But simple doesn't mean easy. The founder still has to convince each investor individually. It's a lot of meetings. Lucas: Absolutely. And that's where the rolling structure helps. You don't have to wait until you have the whole round committed to start deploying capital. You can take money as it comes in. That's a huge advantage for cash-hungry startups. They can start hiring, buying servers, running ads — whatever they need — while they're still fundraising. Luna: I want to bring in a real data point. Coinbase is up five percent this week. That's a signal that crypto and fintech are hot again. Are we seeing more rolling no-cap notes in those sectors? Lucas: Great observation. Yes, fintech and crypto startups are among the biggest users of this structure. They tend to have lumpy revenue and long regulatory timelines, so a valuation cap is hard to justify. A rolling no-cap note lets them raise from crypto-native investors who understand the space and are willing to bet on the team rather than the current metrics. Luna: So if I'm a founder listening, what's the one thing I should know before I try this? Lucas: Know your investor base. This works best when you have a network of angels and micro-VCs who are comfortable with uncapped instruments. If your only potential investors are institutional VCs who want a priced round, a rolling no-cap note might not fly. But if you have a warm list of fifty or a hundred people who believe in you, it's a great way to build momentum. Luna: And what about the next step? After the rolling note, you're presumably heading to a Series A. Does having a bunch of note holders complicate that? Lucas: It can, if you have hundreds of small investors. But most founders cap the minimum investment — say, twenty-five thousand dollars — to keep the cap table clean. And the conversion at Series A is straightforward. The note converts at the discount, and those investors become common stockholders. Lead investors for the Series A usually don't mind, as long as the note isn't too large relative to the round. Luna: So rolling no-cap notes are kind of like the startup equivalent of a subscription service — you pay as you go, instead of a big lump sum. Lucas: That's a great analogy. And just like a subscription, the key is to keep delivering value so people keep paying. In this case, the value is progress toward product-market fit. If you can show that your note funded real traction, your Series A will be that much easier. Luna: If today's conversation was actually useful to you — whether you're a founder thinking about your next round or an investor evaluating deal terms — the way these episodes stay ad-free is through listener support. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a simple way to keep the show going. And we genuinely appreciate it. We put a lot of research into each episode, and knowing that listeners find value in it keeps us motivated. Luna: Absolutely. Now back to the rolling no-cap note — I think one underappreciated aspect is that it forces founders to be disciplined about investor updates. Because you have a rolling group of investors coming in at different times, you have to communicate clearly and regularly. Lucas: That's a really good point. Consistency builds trust. And when you finally do go for that Series A, your investor updates become a track record of execution. VCs love to see that you've been transparent and hitting milestones. Luna: So in a way, the rolling no-cap note is not just a fundraising tool — it's a discipline tool. It prepares you for the rigor of institutional investing. Lucas: Exactly. And with the market as strong as it is — Apple up three point seven percent this week, Microsoft up two point nine — there's a lot of capital looking for a home. Founders who can tell a compelling story and execute on their plan will find that rolling no-cap notes can be the bridge they need to get from idea to real business. Luna: Alright, I think we've covered the nuts and bolts. Next time, maybe we dig into how to actually run a rolling round — the operational playbook. Lucas: I like that. There's a lot of tactical detail there that founders would find useful. But for today, I think the takeaway is: if you're raising in 2026, don't be afraid of the no-cap note. It might be exactly the tool you need.