Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Why More Startups Are Using Rolling Valuations in 2026
Transcript
- Lucas: So we've talked a lot on this show about how startups are changing the way they raise money — rolling closes, data rooms replacing decks, all of that. But there's one mechanic that's quietly becoming the norm in 2026, and it's something I think founders need to understand deeply: rolling valuations. Luna: Rolling valuations. Meaning the valuation isn't set at the first close — it adjusts with each tranche? Lucas: Exactly. Instead of a single 'this is your Series A price,' the company raises in chunks — say, three tranches over six months — and each tranche prices based on a formula tied to revenue or other milestones. So the first close might be at a lower valuation, and if the company hits its targets, later tranches price higher. Luna: I've seen this mostly in later-stage deals, but you're saying it's moving into Series A now? Lucas: Yeah, and it makes sense why. Look at the market today — June 10, 2026. Public comps are all over the place. Palantir is at $132, Coinbase at $155, NVIDIA at $208. Those numbers moved 30, 40 percent in the last year. If you're a VC trying to price a Series A in this environment, you're basically guessing what multiples will look like in 18 months. Luna: So rolling valuations let both sides hedge that bet. Lucas: Right. The founder doesn't get locked into a low valuation if they execute, and the investor doesn't overpay upfront if the market turns. I've been tracking this for a specific segment: B2B SaaS startups with recurring revenue under $5 million ARR. I've seen a few deals where the valuation was pegged to a metric like '2x the next twelve months ARR,' with a floor and a cap. Luna: And that formula is written into the SAFE or the priced round? Lucas: Usually it's a priced round with a tranche structure. The lead investor commits the full amount, but the money comes in stages. The first tranche might be at a $20 million post-money valuation. If the company hits $3 million ARR by month six, the next tranche prices at $25 million. If they blow past it, maybe $30 million. The cap protects the investor from overpaying if growth stalls. Luna: I can see why founders would like that — they get a built-in incentive to show progress, and if they deliver, they capture that value immediately rather than waiting for the next round. Lucas: Exactly. And it also reduces dilution risk. If you raise at a flat $20 million and then hit $5 million ARR, you've left money on the table. Rolling valuation captures that upside. The flip side — and this is important — is that if you miss targets, the later tranches might not come in, or they come in at a lower price. Luna: So it's not a free option. It puts pressure on execution. Lucas: Right. And that's actually why some VCs prefer it. They want to see the founder deliver before writing the whole check. I spoke with a serial founder last week who raised a rolling Series A for his AI startup. He told me that the first close was at a $12 million valuation, and by the time the third close happened, the company had doubled its customer count, and the valuation adjusted to $18 million. Luna: That's a 50 percent increase in six months. I can see why that would attract top-tier talent too — employees joining on options see the valuation climbing. Lucas: Yeah, it becomes a narrative tool as well. 'We're on an upward trajectory, and the price reflects that.' But here's the thing — not every startup is a fit. If your business is lumpy, or you're pre-revenue, a rolling valuation is hard to structure because there's no clear metric to tie it to. Luna: So it works best for companies with predictable recurring revenue and short feedback loops. Lucas: Exactly. I think we'll see more of this in the AI infrastructure space too, where capital requirements are high and milestones are more concrete — like model performance benchmarks. There's actually a headline from this morning: 'Google just fired a warning shot in the AI subscription price wars.' That kind of competitive pressure means startups need to move fast and raise efficiently. Rolling valuations give them that flexibility. Luna: Speaking of AI, I've noticed that a lot of the AI startups I talk to are using rolling valuations specifically because their growth is so lumpy — they might land one big enterprise deal and double ARR overnight. A static valuation would massively undervalue them. Lucas: That's a great point. And it also protects the investor from the opposite scenario — the startup that raises at a high valuation and then flatlines. So rolling valuations essentially align incentives around growth. If both sides agree on the metric, it reduces negotiation friction. Luna: What about the legal side? I imagine the term sheet gets more complex. Lucas: It does. You need clearly defined milestones, audit rights, and often a provision for what happens if the company is acquired between tranches. But the good firms have standard templates now. I've seen Y Combinator's post-money SAFE with a valuation cap being adapted for rolling structures — you basically have a series of SAFEs that convert at different caps tied to dates or metrics. Luna: So it's not a completely new instrument; it's more of a creative use of existing tools. Lucas: Exactly. And that's why it's spreading. Founders don't need to reinvent the wheel. They can use a standard SAFE or priced round and just add a schedule. The key is picking the right metric. ARR is common, but I've also seen gross margin, number of customers, or even a product launch milestone. Luna: I'd be curious to see data on how often these milestones are actually met. If most startups hit them, then rolling valuations are basically a discount for the investor. If most miss, then it's a penalty for the founder. Lucas: I don't have hard data yet — it's still early — but anecdotal evidence from the deals I've tracked suggests about a 70 percent hit rate. Which makes sense: founders who agree to this structure are usually confident they'll hit their numbers. Luna: That's actually pretty high. It suggests the signal is real — founders who opt in are signaling they have visibility into their growth. Lucas: Right. And VCs are using that as a filter. If a founder pushes back hard on a rolling valuation, it can be a yellow flag. Not always — sometimes the business genuinely doesn't fit — but it's becoming part of the diligence process. Lucas: We've been doing these episodes for a while now, and one thing that's become clear is that a lot of you listening are either building companies or investing in them. If these conversations are useful for what you're building or running, that's exactly why we keep doing them. Luna: Yeah, and we keep the show ad-free and independent. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: It makes a real difference. And it lets us keep digging into topics like rolling valuations without any sponsor pressure. So, back to the mechanics — one thing I want to highlight is the impact on the cap table. Luna: Right. Because the valuation keeps changing, the cap table isn't static until the whole round closes. Lucas: Exactly. That can create complexity for option pool allocations and pro-rata rights. Some investors insist on a single valuation for the entire round for simplicity, even if the money comes in tranches. But the trend is clearly toward more flexibility. Luna: I've also heard of 'valuation corridors' — where the valuation can only move within a certain band, say plus or minus 20 percent, regardless of performance. That seems like a compromise. Lucas: Yeah, that's a good middle ground. It protects the founder from a massive down round if they miss by a hair, and it protects the investor from a runaway valuation. I think we'll see more standardized corridors emerge as the practice matures. Luna: So what's your takeaway for a founder listening who's about to start raising? Lucas: I'd say: consider proposing a rolling valuation if you have clear, measurable milestones and a short feedback loop. But make sure you understand the downside — if you miss, you could end up with less money at a lower price. And negotiate the metric carefully. ARR is clean, but if your business is seasonal, a trailing twelve-month average might be better. Luna: And for investors? Lucas: Use it as a tool to reduce risk and align incentives, but don't make it a religion. Some of the best startups are too early for it. Also, be transparent with your LPs about the structure — some funds have restrictions on contingent pricing. Luna: It'll be interesting to see if rolling valuations become the default in five years. Lucas: I think they will, at least for SaaS and AI. The static priced round feels increasingly like a relic of a more predictable era. The market today demands flexibility.