Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / What Startup Valuations Are Hiding in Q3 2026
Transcript
- Lucas: You know that moment when a startup announces a round at a valuation that seems too high — and everyone nods along because the market is 'hot'? I think there's something more subtle going on this quarter, especially for companies targeting a Series A. Luna: What do you mean by 'more subtle'? Are we talking about creative accounting or just investor optimism? Lucas: Neither exactly. It's about how some founders are structuring the valuation itself. I'm seeing a trend where startups use what I'll call a 'rolling valuation window' — they don't set a fixed pre-money number at the close. Instead, they average valuations from a series of smaller convertible note tranches over several months, and then peg the Series A price to that average. Luna: Right, so they can smooth out any dips in sentiment and lock in a higher number by the time they officially raise. That sounds like a way to manufacture a higher valuation. Lucas: Exactly. And it's not necessarily fraudulent — it's more of a framing trick. But it's becoming common enough that some VCs are pushing back. They're asking for 'static valuation locks' — meaning the Series A price is set the day the term sheet is signed, not averaged from earlier rounds. Lucas: Let me give you a concrete example. Take Einride — the Swedish electric trucking startup. They just announced a $38 million investment specifically for EV charging infrastructure. That's a real, tangible asset play. But if they were using a rolling valuation window, they could have raised a few million in convertible notes at a $200 million cap last year, then more at $220 million, then more at $250 million — and then say their Series A valuation is, say, $230 million, averaging it out. Luna: But Einride's round is just one deal. Is this rolling window thing actually widespread? Lucas: It's hard to get exact numbers because it's not disclosed in press releases. But I've talked to three VC partners in the past month who said they've seen it in at least half the Series A deals they evaluated last quarter. And it's particularly common in sectors where momentum is key — like AI, climate tech, and autonomous vehicles. Luna: And at the same time, ARKK — the ARK Innovation ETF — is down 2.8 percent in the last five days. So the public markets are already pricing in some skepticism about high-growth names. That tension must be trickling down to private markets. Lucas: It is. And that's exactly why this matters. If you're a founder thinking about a Series A in Q3 2026, and you see that ARKK is off its highs, you might be tempted to use a rolling window to protect your valuation from a potential downturn. But the risk is that investors will see right through it and demand a steeper discount or more protective terms. Lucas: There's also the question of what this does to the cap table. If you have a rolling valuation, early note holders might convert at a different price than later ones, creating a mess of ownership percentages. Some founders end up with more dilution than they expected. Luna: So what should a founder do if they're considering this approach? Is it ever a good idea? Lucas: I think it can be a tool, but only if you're transparent with your investors about the mechanism. The problem is when it's used to hide a declining trajectory. If your revenue is flat and you're still raising at higher caps, that's a red flag. But if you have genuine momentum — like Einride actually building charging stations — then averaging valuations might be a fair way to capture that progress without getting whipsawed by market noise. Luna: It's interesting because this feels like a symptom of a broader shift. The days of a simple priced round with a fixed valuation feel almost quaint now. Lucas: Exactly. And that's part of why we do this show — to help founders and operators navigate these newer, more complex structures. If these conversations are useful for what you're building or running, and you'd like to help keep the show ad-free, you can support us at buy me a coffee dot com slash fexingo. No pressure, just a way to help us keep digging into these topics. Luna: Yeah, it really does help. And it means we don't have to rely on sponsors, so we can focus on what matters to you. Lucas: Alright, back to the rolling valuation window. Another angle here is how it affects the benchmarking that VCs do. When a VC looks at a startup, they compare it to comparable public companies — especially now that many high-growth names are trading at lower multiples. If a startup uses a rolling window, it might appear to be valued at a premium to its public comps, which can scare off investors. Luna: So the VC might think, 'Why pay $230 million for a private company when I can buy a similar public company at a lower multiple?' Lucas: Exactly. And that's a real challenge. I spoke with a partner at a mid-sized VC firm last week who said they've started explicitly asking about the valuation methodology in every Series A pitch. If the founder can't clearly explain how the number was arrived at — whether it's a rolling window or a fixed price — they walk. Lucas: What's interesting is that some founders are actually leaning into the rolling window as a signal of confidence. They say, 'Look, we're so confident in our growth that we're willing to let our valuation float with our progress.' But that only works if you actually have the growth to back it up. Luna: Right, and if you don't, it can backfire. Let's talk about the Einride example again — they're building physical infrastructure, which is capital-intensive and has long lead times. Does a rolling valuation even make sense for them? Lucas: Probably not, actually. For a hardware-heavy company, the value is in the assets and the contracts, not in monthly growth rate. A rolling window would probably undervalue the long-term potential. So it's really a tool for software and platform companies with recurring revenue that's accelerating month over month. Luna: That makes sense. So it's not a one-size-fits-all. It depends on your business model and your growth trajectory. Lucas: Precisely. And that's the takeaway for anyone listening who's thinking about a raise: don't just copy what you see other startups doing. Understand why you're choosing a particular valuation mechanism. If you're a high-growth SaaS company, a rolling window might help you capture that momentum. If you're a deep-tech or infrastructure play, you're probably better off with a static valuation that reflects your tangible progress. Luna: And if your investors are pushing back on a rolling window, what's the best counter-argument? Lucas: I'd say show them the data. If you can demonstrate that your key metrics — ARR, gross margin, retention — are improving month over month, and that the rolling window simply averages those improvements, that's a strong argument. But if you can't show that data, then the rolling window looks like a way to hide weakness. Lucas: There's also a practical tip: if you do use a rolling window, make sure your legal docs are crystal clear on how the conversion price is calculated. I've seen disputes where note holders and Series A investors disagree on the average, and that can delay the close by weeks. Luna: And delays can kill momentum, especially in a market where sentiment can shift quickly — like we're seeing with ARKK down and some of the big tech names. Lucas: Yeah, exactly. So the key is transparency and alignment. If you're open with your investors about how you're valuing the company, and they agree on the mechanism, then a rolling window can be a legitimate tool. But if you try to sneak it in, it'll backfire. Luna: Alright, so we've covered what a rolling valuation window is, when it might be useful, and when it's a red flag. Any final thoughts? Lucas: Just that we're in a period where valuation mechanics are getting more creative. It's not just about how much you raise, but how you arrive at that number. Founders who understand the details — and can explain them clearly — will have an edge. And investors who ask the right questions will avoid overpaying. Luna: Well said. And with that, we'll wrap up this episode of The Series A Show. Thanks for tuning in. Lucas: See you next time.