Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Why Startups Are Using Rolling SAFEs to Close Rounds Faster
Transcript
- Lucas: So let's talk about rolling SAFEs. I've been looking at this for the last few weeks, and it's one of those innovations that seems obvious in hindsight. A rolling SAFE is basically a Y Combinator SAFE note, but instead of closing a round all at once, you keep it open for a period—say three to six months—and investors can come in at any time during that window. Luna: Right, and each investor gets a slightly different valuation cap depending on when they invest, like earlier investors get a lower cap, later ones pay more. Lucas: Exactly. The cap increases over time, sometimes on a preset schedule. So there's an incentive to get in early. And for founders, it means you don't need to wait for a lead investor to set the terms and bring in a syndicate. You can start collecting checks day one. Luna: That sounds like it solves the chicken and egg problem of early-stage fundraising. But does it actually work in practice? I've seen some founders complain that it leads to a fragmented cap table. Lucas: Yeah, that's a real concern. But the trade-off is speed. Take a look at the market context right now, July 2026. We've seen ARKK down 4% in the past five days, COIN down almost 6%. There's volatility. Investors are skittish. Founders who wait for a traditional round might miss their window. Rolling SAFEs let them build momentum while the market is still uncertain. Luna: So it's like a continuous fundraise. But isn't there a risk of adverse selection? The investors who come in early might be the ones who don't have better opportunities, or who are just throwing a small check to keep a relationship warm. Lucas: That's the flip side. But the data from Y Combinator's batch—I think it was the W26 batch—showed that rolling SAFEs actually attracted more institutional investors than expected. Because the structure is transparent. The cap schedule is public. Investors know they're not getting a worse deal than someone who comes later. Luna: So it's like a price-discovery mechanism as well. Let's say a startup sets an initial cap of $5 million, then increases it by 5% every month. By month three, the cap is around $5.75 million. That signals growing confidence. Lucas: Right. And it's not just Y Combinator startups. We're seeing more funds use rolling SAFEs for pre-seed and seed rounds outside of accelerators. I talked to a founder in Boston last week who raised $1.2 million over four months with a rolling SAFE. She said the biggest advantage was not having to spend weeks negotiating a single term sheet with one lead. Luna: But then when you go to raise a Series A, do investors look at a rolling SAFE differently than a traditional convertible note? I imagine some VCs might see it as a sign that you couldn't close a proper round. Lucas: That stigma is fading, especially as more notable companies have used them. And honestly, if you look at the history of Palantir, they used convertible notes for years before their IPO. They had this continuous fundraising approach that was essentially a rolling structure. It worked for them. Luna: Interesting. So rolling SAFEs are kind of the modern, standardized version of that. Without the legal complexity of a full convertible note. Lucas: Exactly. And the simplicity is a big part of the appeal. You can have a single document, and every investor signs the same form. The only variable is the cap that applies on their investment date. That's it. Luna: If today's conversation is useful for what you're building or running, I'd just mention that these episodes stay ad-free because of listener support. If you want to help keep that going, you can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small gesture that goes a long way. And it means we never have to run ads. So, back to rolling SAFEs—one thing I want to highlight is how they interact with future rounds. If you raise a rolling SAFE now, and then later do a priced round, the conversion mechanics are the same as a standard SAFE. The cap and discount apply. The only difference is the cap might be higher for later investors in the rolling window. Luna: So it's not a fundamentally different instrument, just a different way of deploying it. That makes sense. Lucas: Right. And it's worth noting that some funds are now creating rolling SAFE pools. They'll allocate, say, $5 million to a rolling SAFE program and deploy it over six months into multiple startups. That way, they can pace their investments and still get the same terms. Luna: That's a smart move for a fund that wants to dollar-cost average into early-stage deals. But for a founder, does it change the way you approach investor updates? Lucas: It does. Because you're constantly fundraising, you have to keep investors engaged. But that can be a good discipline. Regular updates, transparent metrics. And if you hit a milestone during the rolling window, you can use that to justify a cap increase for new investors. Luna: So it creates this virtuous cycle. You raise a bit, hit a milestone, raise more at a higher cap, hit another milestone, and so on. Until you're ready for a Series A. Lucas: Exactly. And it aligns perfectly with the way many startups actually grow—incrementally. Not in big discrete jumps. Luna: What about the downside of having a cap table with dozens of small investors? That could be a headache for future rounds when you need to get consent or provide information. Lucas: It's a valid concern. But most rolling SAFEs cap the minimum check size. You might set a $25,000 minimum, which limits the number of investors. And many startups use a platform like AngelList or Carta to manage the cap table automatically. Luna: So the administrative burden isn't as bad as it used to be. And investors are also more comfortable with digital signatures and automated conversions. Lucas: Yeah. And the trend is only accelerating. I think within two years, rolling SAFEs could become the default for pre-seed rounds. They're just too efficient. Luna: If a founder is listening and thinking about trying this, what's your one piece of advice? Lucas: Set a clear cap schedule upfront and communicate it. Don't try to negotiate each investor individually. That defeats the purpose. And be prepared to keep fundraising even when you don't feel like it. It's a marathon, not a sprint. Luna: That's good advice. I think the key takeaway is that rolling SAFEs are not a silver bullet, but they are a powerful tool for founders who want to maintain momentum in uncertain markets. Lucas: Exactly. And with the current market volatility, having that flexibility is more valuable than ever. So if you're a founder, it's worth considering. If you're an investor, it's worth getting comfortable with. Luna: And if you want to dive deeper, we'll have show notes with sample cap schedules and links to a few startups that have used rolling SAFEs successfully. Lucas: I'll also share a template from a founder who raised $800K on a rolling SAFE last quarter. She broke down her investor outreach timeline and the cap increases she used. That should be up on the Fexingo site later this week. Luna: Great, look forward to that. For now, thanks for listening, and we'll catch you next time.