Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / How Startups Use Rolling Funds to Close Rounds Faster
Transcript
- Lucas: So rolling funds — they've been around since AngelList launched the format back in 2020, but if you look at the data from the first half of 2026, they now account for just over 15 percent of early-stage deals. That's up from maybe 8 percent two years ago. Luna: Fifteen percent feels big for a structure that a lot of founders still don't fully understand. What's the core thesis? Lucas: The basic idea is that instead of a traditional VC fund that raises a fixed amount — say one hundred million dollars — and then deploys it over three to four years, a rolling fund is a continuous vehicle. LPs commit capital on a quarterly or annual basis, and the GP can invest that capital as it comes in, without waiting for a close. Luna: So it's basically a subscription model for venture capital. You're paying a quarterly 'dues' to a fund that then writes checks to startups throughout the year. Lucas: Exactly. And that changes the tempo for startups. If you're a founder and you need to close a bridge round in a hurry, you can pitch a rolling fund and get a decision in weeks instead of months. The fund always has 'dry powder' — or at least, it has a predictable inflow. Luna: I saw a case recently — a B2B SaaS startup that needed a five-hundred-thousand-dollar bridge to hit a revenue milestone before their Series A. They pitched three rolling funds and had commitments for four-fifty within three weeks. Closed in twenty-one days. Lucas: That speed is the killer feature. But there's a trade-off. Rolling funds tend to write smaller checks — typical ticket sizes are two-fifty to five hundred thousand. And because the GP is raising capital continuously, they're also managing LP relationships constantly. It's a different operating model. Luna: Right, the GP is essentially in perpetual fundraising mode. That can be exhausting, and it might mean they spend less time actually helping portfolio companies. Lucas: That's the critique. But the data suggests LPs like it. If you look at the Ark Innovation ETFs — ARKK is up four percent in the last five days, ARKG up three-point-six — there's clearly appetite for innovation exposure. Rolling funds give LPs a way to allocate capital incrementally instead of committing a big lump sum upfront. Luna: And for founders, the big advantage is that you can build relationships with funds that are always active. You're not waiting for Fund II to close or for a partner to have time on their calendar. Lucas: Right. And that's why we're seeing more sector-specific rolling funds. There are funds now that focus exclusively on AI agent marketplaces, or on climate tech, or on defense. They can be very thesis-driven because they're constantly deploying. Luna: But isn't there a risk of over-dilution? If you keep going back to the same rolling fund, you're basically giving them a piece of every round. Lucas: That's a real concern. Some founders end up with a single rolling fund holding fifteen or twenty percent of their cap table, because that fund invested in the seed, the bridge, and the Series A. It can create concentration risk and reduce your negotiating leverage later. Luna: So the advice is to treat rolling funds like any other investor — diversify your cap table, even if the money is easy to access. Lucas: Exactly. And that brings up another point: rolling funds are changing the power dynamic between founders and VCs. Traditionally, VCs control the tempo of fundraising. They decide when to open a fund, when to close it, and how fast to deploy. Rolling funds hand some of that control back to founders, because capital is always available — but at a price. Luna: The price being that you might have to accept slightly worse terms or a smaller check from a rolling fund than from a traditional VC who can write a bigger ticket. Lucas: Yeah, and also the fee structure is different. Rolling funds typically charge a management fee on committed capital every quarter, which can add up. Plus, the carry — the performance fee — is usually twenty percent, same as traditional funds. But because the fund is always open, the GP is incentivized to keep deploying, which can lead to lower underwriting standards. Luna: So there's a potential adverse selection issue. The startups that can't get funded by traditional VCs end up going to rolling funds, and the rolling funds might end up with a lower-quality portfolio. Lucas: That's the theory. But in practice, the best rolling funds have strong brands and can attract top-tier deal flow. For example, there's a rolling fund run by a former partner at a top-tier firm that's deployed over two hundred million dollars through this model. They've had several exits. So it's not just a second-tier structure. Luna: And the SEC has been watching. A few years ago, there was some regulatory uncertainty about whether rolling funds were essentially operating as unregistered investment companies. But the SEC eventually issued guidance that made it clear they're fine as long as they comply with the standard exemptions. Lucas: Right. And that clarity helped fuel the growth. Now you see rolling funds not just on AngelList but also on platforms like Sydecar and Assure. It's become a standard option for both GPs and LPs. Luna: If these conversations are useful for what you're building or running, the way this show stays ad-free is through listener support. You can find us at buy me a coffee dot com slash fexingo. It's a small gesture that keeps the podcast independent. Lucas: Yeah, seriously — if today's episode helped you think about your fundraising strategy, that's exactly the kind of signal that tells us we're on the right track. And the support really does make a difference. Luna: Alright, back to rolling funds. One thing I want to touch on is how they interact with other modern fundraising tools, like SAFEs and rolling notes. Lucas: Great point. A rolling fund can invest via a SAFE, a convertible note, or even priced equity. The flexibility is huge. But there's a nuance: because rolling funds have a constant inflow of capital, they often prefer to invest in instruments that don't have a fixed valuation — like SAFEs — so they can deploy quickly without getting bogged down in valuation negotiations. Luna: That makes sense. And it dovetails with the trend we've seen of startups using SAFEs for bridge rounds. You get the money fast, you don't set a valuation, and then you set it later when you have more traction. Lucas: Exactly. So rolling funds and SAFEs are a natural pair. But founders need to be careful about the accumulation of uncapped SAFEs or SAFEs with valuation caps that are too low. You can end up with a messy cap table. Luna: Right. I think the key takeaway for founders is: rolling funds are a tool, not a strategy. They can help you close rounds faster, but you still need to be thoughtful about who you bring on as investors and on what terms. Lucas: And for LPs, rolling funds offer a way to get exposure to early-stage venture with lower commitment and more liquidity — at least in theory. You can stop contributing at any time, so you're not locked in for ten years. Luna: But you also don't get the same level of due diligence or portfolio support that a traditional VC might provide. It's a trade-off. Lucas: Right. And I think that's the honest assessment. Rolling funds are not a revolution that will replace traditional VC. They're an evolution that adds more options to the ecosystem. For founders who need speed and flexibility, they're a great fit. For those who need large checks and deep strategic support, traditional funds are still the way to go. Luna: And as we've seen with the market this week — Rivian up nineteen percent, Palantir up fourteen and a half — there's a lot of volatility and opportunity. Startups that can move fast to capture moments like that benefit from having capital that's readily available. Lucas: Yeah, that's the edge. Rolling funds let you strike while the iron is hot. And in this market, timing can be everything.