Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Why Startups Are Using Rolling Funds to Build Momentum
Transcript
- Lucas: If these conversations are useful for what you're building or running, you're in good company. Today we're digging into why pre-seed startups are increasingly turning to rolling funds to keep the fundraising engine running year-round. Luna: Rolling funds are having a moment. Nearly 90 new unicorns have been minted already in 2026, and I'm betting a chunk of them used this model early on. Lucas: Yeah, absolutely. The traditional model — raise a seed round, then spend six months pitching Series A — is giving way to something more fluid. Rolling funds let startups accept capital on a recurring basis, often quarterly, from a pool of limited partners who commit to a subscription. Luna: So instead of one big fundraise every 18 months, you're constantly topping up. Doesn't that create administrative headaches? Lucas: It can, but the trade-off is significant. With a rolling fund, a startup can close new investors every quarter without a formal 'round.' That means less downtime, less distraction from the product, and a steady stream of capital to fuel growth. We've seen funds like AngelList's rolling fund product make this accessible to a much wider range of investors. Luna: And the investors — they're committing capital over a period, usually two to three years, right? So they get diversification across multiple startups. Lucas: Exactly. Instead of betting on one company per check, they spread their investment across dozens of deals that the fund manager picks. It's like a venture capital subscription. For the startup, that means you're not constantly hunting for the next lead investor. Luna: But isn't there a risk of overhang? If you keep taking money, you might accumulate a cap table that's messy for later rounds. Lucas: That's a real concern. But many startups now use rolling funds that issue simple agreements for future equity, or SAFEs, which convert at the next priced round. That keeps the cap table clean until the Series A. And because the fund manager aggregates the capital, the startup only deals with one entity on the cap table per fund. Luna: So it's a bit like having one investor who keeps writing checks. That changes the dynamic of the relationship — more like a partnership than a transaction. Lucas: Right. And that's a big part of the appeal. The rolling fund manager — often an experienced angel or micro vc — is aligned to help the company succeed over multiple quarters, not just during a single diligence process. They're incentivized to provide ongoing support. Luna: Let's talk numbers. How much are these rolling funds typically raising per quarter? Lucas: It varies widely. Some pre-seed rolling funds target $250,000 to $500,000 per quarter, but we've seen larger ones doing $2 million per quarter. The key metric is the annual commitment — typically $1 million to $8 million total over two to three years. That gives the startup predictable capital to hire engineers, run experiments, and hit milestones. Luna: And the startups that use them — are they seeing faster growth? There's some data from 2025 showing that companies using rolling funds had a 30% higher survival rate through the first 24 months. Lucas: I've seen that data too. It makes sense — they have less cash flow stress. They're not constantly in 'save money' mode between rounds. They can invest consistently in growth. Plus, they build a relationship with investors who see them every quarter, so when a real Series A opportunity comes, they have a warm audience. Luna: Speaking of warm audiences — a quick honest thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these shows possible. No ads, just listener support. Lucas: Yeah, it's a small group, but it keeps us independent. We can dive deep into whatever's actually moving the needle for founders without worrying about sponsor tone. Luna: Appreciate everyone who's part of that. Okay, back to rolling funds — one question I get a lot is how rolling funds affect valuation. Since there's no single priced round, how do you value the company? Lucas: Great question. Most rolling funds use a valuation cap on the SAFE, which sets a maximum valuation at conversion. The cap might increase each quarter as the startup shows progress. So the first quarter might have a $5 million cap, the second $7 million, and so on. That rewards early investors with a lower cap and gives later investors confidence that the company is growing. Luna: So it's like a step-up valuation that aligns incentives. The startup keeps hitting milestones to justify a higher cap, and investors get in at a lower price if they commit early. Lucas: Exactly. And because the fund manager is raising from their own LPs quarterly, they're motivated to only invest in startups that are actually progressing. It creates a natural screening mechanism. Luna: There's also the network effect. Startups that get into a well-known rolling fund often find it easier to attract co-investors and later-stage VCs. It's a signal. Lucas: Definitely. If you're accepted into a rolling fund managed by a respected angel like, say, someone who's backed a few unicorns, that's a stamp of approval. It can open doors to syndicates and larger funds. Luna: But what about the downside? Rolling funds aren't a perfect fit for every startup. If you need a big lump sum for manufacturing or inventory, a quarterly drip might not work. Lucas: Right. Rolling funds are best for software and services companies where capital is used for headcount and customer acquisition — things that scale gradually. For hardware or biotech, you often need a large upfront check. So it's not a one-size-fits-all. Luna: And there's the regulatory side. In the US, rolling funds are typically structured as 3 or 3 funds, which have limits on the number of investors. That can cap the total capital you can raise. Lucas: True. Most rolling funds stay under 100 investors for that reason. But for a pre-seed startup, that's usually plenty. You don't want 300 angels on your cap table anyway. Luna: So what's the trendline? Are rolling funds becoming the default for pre-seed? Lucas: I think they're becoming a strong alternative. In 2024, about 15% of pre-seed rounds used rolling funds. In 2025, that number jumped to nearly 25%. And with the current market — where traditional VC is still cautious — rolling funds offer a way to keep momentum without the pressure of a single large close. Luna: And we're seeing more platforms emerge to facilitate them. AngelList, Carta, and others have built infrastructure to handle the administration, which lowers the barrier for managers. Lucas: Yeah, that's a key enabler. Five years ago, setting up a rolling fund meant hiring a lawyer and dealing with complex compliance. Now you can launch one in a few weeks. That's democratizing access to venture capital. Luna: For founders listening, what's the first step if they want to explore a rolling fund for their startup? Lucas: First, identify if your business model fits — recurring capital needs, not lumpy. Then, look for rolling fund managers who invest in your space. Many publish their thesis and track record. You can also consider starting your own rolling fund if you have a strong network, but that's a bigger commitment. Luna: And be prepared to report quarterly. Rolling fund investors expect updates, metrics, and a clear story of progress. That discipline can actually help you run a better company. Lucas: Absolutely. The transparency required by quarterly reporting forces you to think about your metrics regularly, not just when you're raising. That's a healthy habit. Luna: So rolling funds are more than just a fundraising tool — they're a management discipline. I like that framing. Lucas: It really is. And as we see the unicorn count climb in 2026, I suspect rolling funds will be part of the story for many of them. It's a way to build momentum continuously, instead of in sprints. Luna: Good note to end on. For The Series A Show, I'm Luna. Lucas: And I'm Lucas. If you're building something and this was useful, share it with a co-founder. We'll catch you next time.