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 we're about halfway through 2026, and if you've been following early-stage fundraising at all, you've probably noticed one instrument dominating the conversation: the rolling SAFE. Luna: It's everywhere. I just looked at the latest Y Combinator batch data — over 70 percent of the companies that disclosed their instrument used a rolling SAFE for their pre-seed or seed round. Lucas: And that's up from maybe 40 percent two years ago. The question is: why? On paper, a SAFE is simple — it's a convertible instrument with no interest, no maturity date, and it converts at the next priced round. But the 'rolling' part adds a twist — it lets founders keep the round open, continuously accepting new money at the same terms, sometimes for months. Luna: Yeah, and that changes the dynamic quite a bit. Instead of a hard close on a specific date, you're basically fundraising until you decide to stop. But doesn't that create messiness on the cap table? Lucas: It can, absolutely. Every new investor adds a line item. If you have 50 rolling SAFE holders, that's 50 separate contracts, each with potentially different discount rates or valuation caps if you change terms mid-stream. But most founders keep the terms uniform for the whole rolling window to avoid that complexity. Luna: And to be fair, a priced round with 50 investors would also be a nightmare. The SAFE at least defers the conversion event, so you don't have to issue shares immediately. Lucas: Right. The big selling point is speed. A traditional seed round might take 6 to 12 weeks from first meeting to close. A rolling SAFE? Founders tell me they can start taking money within a week of putting the document out. You get a lead investor, set the terms, and then anyone who wants in at those terms can wire money same-day. Luna: And that speed matters especially in this market. We've seen the ARK Innovation ETF, ticker ARKK, down almost 4 percent in the last five days. There's unease in growth-stage public markets, and that trickles down to private markets — investors get pickier, rounds take longer. Rolling SAFEs let founders capture momentum before sentiment shifts. Lucas: And if today's episode was useful for something you're building or running, honestly, if it was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Luna: Yeah, it's the smallest possible ask. Keeps the show ad-free and independent. Lucas: Okay, so back to the rolling SAFE. One thing I find interesting is how it changes the power dynamic between founder and investor. In a traditional round, the lead investor negotiates terms and the rest follow. With a rolling SAFE, the founder sets the terms upfront and investors either accept them or pass. That puts more leverage in the founder's hands. Luna: Assuming the terms are fair and the founder has some traction. I talked to a partner at a top-tier fund last week, and he said they're seeing more rolling SAFEs with valuation caps that are actually reasonable — like $8 to $12 million for a pre-seed — not the $20 million caps we saw in 2021. Luna: But he also mentioned that some founders are using rolling SAFEs to avoid having to set a valuation at all, which can backfire if the next round is down or flat. Lucas: That's a real risk. If you raise $2 million on a rolling SAFE with a $10 million cap and then your Series A is at a $15 million pre-money, the SAFE converts at the cap, so the investors get a better price. But if your Series A is at $8 million, you have a down round and the SAFE converts at the lower price, which means more dilution for you. Luna: So the rolling SAFE doesn't eliminate the valuation question — it just defers it. And if the market turns, you could end up with a lot of SAFE holders converting at once, which is a cap table crunch. Lucas: Exactly. And that's why some lawyers recommend including a most favored nation clause — it lets later investors opt into better terms if you improve the deal later. But it also caps your upside if you want to raise the cap mid-round to attract a bigger name. Luna: So what's the optimal use case for a rolling SAFE in mid-2026? I think it's for startups that have some traction — maybe a product in beta, a few pilot customers, but not enough revenue to command a traditional seed valuation. They need to close quickly to hire or build inventory, and they don't want to spend 3 months negotiating a priced round. Lucas: I'd add that it's also great for founders who have a strong network of angel investors who can write checks quickly. If you have 20 angels who already trust you, you can raise $500,000 in a week on a rolling SAFE. That's hard to do with a priced round where every investor wants their own lawyer to review the docs. Luna: And the data backs that up. We looked at the Companies House filings for UK startups that used rolling SAFEs in Q1 2026 — the median time from first close to final close was 23 days. For priced rounds, it was 67 days. Lucas: 23 days versus 67 — that's a massive difference. And in a market where the window of opportunity can close quickly, speed is a real advantage. Luna: But what about the downside of having a cap table that's essentially a list of 30 to 50 individual SAFE holders? At some point, you need to manage that relationship. Are those investors going to be helpful in the Series A? Lucas: That's a good point. A lot of those smaller angels might not be able to write a follow-on check. They're one-and-done. Whereas in a traditional seed, you might have 5 or 6 institutional investors who can lead your Series A. With a rolling SAFE, you might not have a clear lead investor to champion you in the next round. Luna: So the advice from VCs I've spoken to is: use the rolling SAFE to close fast, but also try to get at least one or two institutional investors in the round who can serve as anchors and help with the next raise. Lucas: Which is exactly what we're seeing. The rolling SAFE isn't replacing the priced round — it's becoming the pre-seed and seed standard, but most startups still plan to do a traditional Series A within 12 to 18 months. Luna: And by then, the cap table is cleaner because the SAFEs have converted into equity, and you have a clearer picture of ownership. Lucas: One more thing I want to touch on: the tax implications. In the US, SAFEs are generally treated as equity for tax purposes, but there's some nuance around whether the discount or cap triggers a taxable event at conversion. The IRS hasn't issued clear guidance, so it's a gray area. Luna: I think most founders just assume it's tax-free until they get a letter from the IRS. But it's worth having a tax advisor look at the specific terms. Lucas: Agreed. So to sum up: rolling SAFEs are fast, founder-friendly, and increasingly the norm for early-stage rounds in 2026. But they're not a free lunch — you trade some cap table simplicity and investor alignment for speed and flexibility. Luna: And the key is to use them strategically. If you have traction and a network, go for it. If you need a lead investor to help shape your strategy and open doors, maybe a priced round is still the way to go. Lucas: Yeah, I think the smartest founders are using rolling SAFEs as part of a broader fundraising strategy — not the whole strategy. Luna: Right. And we'll be watching to see if the trend continues into 2027, or if we see a shift back to priced rounds as the market stabilizes. Lucas: It's an open question. For now, if you're raising pre-seed, the rolling SAFE is probably your best bet.