Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / How Pre-Seed Startups Use Rolling Funds to Build Momentum
Transcript
- Lucas: So it's July 4th, 2026, and while the rest of the country is lighting fireworks, we are talking about rolling funds. Specifically, how pre-seed startups are using them to build momentum without the pressure cooker of a traditional fundraise. Luna: Right, and I think this is especially relevant given what we're seeing in the public markets. Palantir up 14.5% in five days, Coinbase up 11%. There's a lot of optimism flowing down to early-stage. Lucas: Exactly. And look, if these conversations are useful for what you're building or running, a couple of dollars a month on buy me a coffee dot com slash fexingo is genuinely what keeps these going. Luna: Yeah, it makes a real difference. And we keep it ad-free because of that. Lucas: Alright, back to rolling funds. So the concept isn't new — Mike Abramowitz at Freestyle Capital wrote about it in 2016. But what's changed is the adoption at the pre-seed stage. In Q2 of this year, over 150 pre-seed funds were launched as rolling vehicles, according to data from AngelList. Luna: That's a lot. And I think part of it is that founders want to control the narrative. A rolling fund lets them raise capital on their own timeline, not a VC's. Lucas: Exactly. Let's take a concrete example. There's a B2B SaaS startup I've been following — let's call them DataForge. They raised $2.3 million through a rolling fund over six months. 47 different checks, ranging from $10,000 to $250,000, from a mix of angels, family offices, and even a couple of small VCs. Luna: And that's interesting because it's not just about the money. It's about building a community of investors who are aligned and engaged. Each check comes with a relationship. Lucas: Right. And the structure is pretty straightforward. The founder sets up a fund on a platform like AngelList, chooses a target — say $2 million — and then accepts capital on a rolling basis. Investors commit capital, and the fund makes a single investment into the startup. The LP gets a pro rata right for future rounds. Luna: How does that differ from a syndicate? Because syndicates also have a lead investor and multiple backers. Lucas: Great question. The key difference is in the legal structure. A syndicate is typically a single-purpose vehicle that invests in one deal. A rolling fund is a continuous vehicle — it can make multiple investments over time, and LPs can join at any point during the offering period. Plus, the fund itself is a registered fund, which means it can accept capital from non-accredited investors in some cases, though that's still rare. Luna: So for a pre-seed founder, what's the pitch for using a rolling fund instead of a SAFE? Lucas: The big one is momentum. With a SAFE, you typically close the round in one shot. With a rolling fund, you can start collecting checks immediately, and you can announce each close on social media or to your network. It creates a sense of FOMO among potential investors. DataForge, for example, announced their first $500,000 close in February, then $1 million in March, and so on. Each announcement brought in new investors. Luna: But there's a downside, right? The constant fundraising can be a distraction. Founders are spending time on investor relations instead of building product. Lucas: That's the biggest critique. You have to manage a rolling fund like a part-time job. You're continually marketing, updating LPs, and filing paperwork. And if you don't hit your target, it can be a signal to the market that you're struggling. DataForge's founder told me she spent about 10 hours a week on investor communications during the six-month raise. Luna: Ten hours a week is significant. For a pre-seed startup with a small team, that's a big opportunity cost. Lucas: Absolutely. But the counterargument is that you're building a base of investors who are emotionally and financially committed. When DataForge went out to raise their Series A in June, they already had a warm list of 47 LPs who could introduce them to larger VCs. That's a real asset. Luna: And what about the economics? The fees on rolling funds can eat into returns. Lucas: Yeah, typical rolling funds charge a 2% management fee and 20% carried interest. That's on par with a traditional VC. But because the fund is smaller, the absolute fees are lower. For a $2.3 million fund, that's $46,000 a year. Not nothing, but manageable. And some founders waive the management fee to attract LPs. Luna: I've also seen some startups use rolling funds as a way to test product-market fit. If you can raise $500,000 quickly, it's a strong signal that investors believe in your vision. Lucas: That's a really good point. In fact, some VCs use the speed of a rolling fund close as a proxy for traction. One partner at a top-tier firm told me that if a startup can close $1 million in a rolling fund within 60 days, it's a positive indicator. They'll often invest in the subsequent round. Luna: So it's almost like a proof of concept for the business model itself. You're not just selling equity, you're selling your ability to execute. Lucas: Exactly. And that's why I think rolling funds are here to stay, especially for pre-seed. They democratize access to capital, and they align incentives between founders and investors in a way that traditional rounds don't. But they're not a silver bullet. If you're building a capital-intensive hardware startup, you probably still need a traditional round. Luna: Right, because you need a large check upfront for tooling and inventory. Rolling funds work best for software and services where you can iterate with smaller amounts. Lucas: And that's the sweet spot. So if you're a founder listening and you're thinking about a pre-seed raise, consider whether a rolling fund could work for you. The key is to have a clear plan for how you'll manage the administrative load, and to be transparent with your LPs about your progress. Luna: And don't forget the legal side. Make sure you have good counsel. AngelList provides templates, but they're not a substitute for a lawyer who understands your specific situation. Lucas: Good advice. I think we're going to see more innovation in this space. Some funds are experimenting with revenue-based rolling funds, where returns are tied to revenue rather than equity. That could be a game-changer for bootstrapped startups. Luna: I've seen a few of those. It's still early, but the interest is there. And with the public markets showing strength — Apple up 8.8% in five days, NVIDIA up 1.2% — the overall appetite for risk seems to be coming back. Lucas: Which is good news for founders. But as always, the fundamentals matter more than the market. Build a great product, find product-market fit, and the capital will follow. Luna: Agreed. That's what we'll keep an eye on as we move into Q3. Lucas: Alright, that's it for today. If you want to support the show, you know where to find us. And we'll see you next time.