Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Why Startups Are Building Pre-Seed Rounds With Rolling Funds
Transcript
- Lucas: If these conversations are useful for what you're building or running, you already know we keep this show ad-free. We don't run ads because we think the content should speak for itself. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. It's that simple. Luna: Yeah, no pressure. It's just a way for listeners who find value here to keep the lights on. And it helps us stay independent. Alright — back to the topic. Lucas: So rolling funds. They've been around for a few years now, but I think we're seeing a real inflection point in 2026. According to a Q2 report from Carta, rolling funds now account for roughly 30 percent of pre-seed deal flow. That's up from maybe 10 percent just two years ago. Luna: It's a huge shift. And I think a lot of founders are choosing rolling funds because they don't have to hit one big closing number. They can raise in increments. Lucas: Exactly. The traditional model is: you go out, you pitch, you try to close a $2 million round all at once. That can take months. With a rolling fund, you're accepting capital on a recurring quarterly basis. So you can start operating on the money you've already raised while continuing to bring in new investors. Luna: It's like a subscription for investors. They commit to a certain amount per quarter, and the fund writes checks into startups over time. The startup gets a steady drip of capital instead of one big lump sum. Lucas: Right. And that changes the dynamics of early-stage fundraising. For one, it reduces the pressure to hit a single target. You don't have to say, 'I need to close $2 million by Friday or the round fails.' Instead, you're building momentum quarter by quarter. Luna: But there are trade-offs. The investor base can feel less committed. If someone's just writing $25,000 a quarter, they might not be as engaged as a lead investor who wrote $500,000 upfront. Lucas: That's a real concern. And the constant drumbeat of fundraising can be a distraction. You're always in 'pitch mode' because you're always trying to bring in the next quarter's capital. Some founders find that exhausting. Luna: Let's talk about a concrete example. There's a fintech startup called Parallax — they do cross-border payments for freelancers. They used a rolling fund to close their pre-seed round in just six weeks. Lucas: I remember that case. They raised $1.5 million through a rolling fund managed by a micro vc. The key was that they had a clear milestone: they wanted to launch in three new markets. So they could say to investors, 'Look, we've already raised $500,000. We're going to start expanding. If you join now, you're part of that growth story.' Luna: And the rolling fund allowed them to close quickly because they didn't have to wait for one big check. They could announce a $100,000 commitment from one investor, then another $50,000 from someone else, and keep the momentum going. Lucas: What's interesting is how rolling funds interact with SAFEs. Most rolling funds invest using SAFEs with valuation caps. But the cap negotiation can get tricky when you're bringing in investors over multiple quarters. Do they all get the same cap? Or does the cap change based on when they invest? Luna: Most funds standardize the cap for a particular cohort. So if you invest in Q3 of 2026, you get the same cap as everyone else who invested in Q3. But if the startup hits a big milestone, the cap might go up for the next quarter. It creates a natural incentive to invest early. Lucas: That's a good point. It builds a sense of urgency. But it also adds complexity to the cap table. You end up with multiple SAFEs at different caps, which can be a headache when you're converting to equity later. Luna: Yeah, lawyers love that. But founders need to be careful. If you have too many different SAFE terms, it can scare off later-stage investors who don't want to deal with a messy cap table. Lucas: So what's the takeaway? Rolling funds are a powerful tool for pre-seed startups, especially if you need speed and flexibility. But they're not a panacea. You still need a compelling story and a clear plan for using the capital. Luna: And you need to be prepared for the ongoing fundraising cadence. It's not a one-and-done. It's a relationship-building process that lasts for quarters. Lucas: One thing I'd add: the data shows that startups using rolling funds actually raise more total capital on average than those using traditional rounds. According to that Carta report, the median pre-seed rolling fund raise was $1.8 million, versus $1.2 million for traditional rounds. Luna: That's significant. But is it because rolling funds attract better startups, or because the structure itself allows for more capital? Lucas: Probably a bit of both. The startups that choose rolling funds tend to be more growth-oriented and comfortable with continuous fundraising. And the structure does allow for more capital because you're not limited by a single close. Luna: I think we'll see more traditional VCs adopt rolling fund structures for their own fundraises. We're already seeing some micro-VCs raise rolling funds instead of traditional closed-end funds. Lucas: That would be a big shift. If the LP base becomes more accustomed to quarterly commitments, it could change the entire venture capital model. But that's a conversation for another episode. Luna: For now, founders should consider rolling funds if they value speed and want to build investor momentum over time. Just be aware of the ongoing time commitment and the cap table complexity. Lucas: And if you're an investor, rolling funds offer a way to deploy capital gradually and build relationships with startups before committing large sums. It's a win-win in many cases. Luna: Alright, that's our angle on rolling funds for pre-seed. Next time, we'll look at how rolling funds are starting to appear in Series A rounds — and what that means for founders. Lucas: Sounds good. Until then, keep building.