Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / How Startups Use Rolling Funds to Keep Investor Capital Flowing
Transcript
- Lucas: So if these conversations are useful for what you're building or running, you've probably noticed that raising capital isn't a one-and-done anymore. More founders are turning to rolling funds to keep the capital flowing between rounds. Luna: Rolling funds — we touched on them in episode four, but they've evolved a lot since then. What's the latest? Lucas: Right, so the basic model hasn't changed: a fund that accepts capital on a recurring basis — typically quarterly — instead of raising a single pool and deploying it over several years. But what I'm seeing now is that rolling funds are becoming a permanent fixture in a startup's capital stack, not just a bridge. Luna: Permanent fixture — meaning founders are using them to replace the traditional seed round? Or more like a complement? Lucas: More like a complement. Take Triomics, which just announced a $22 million raise for oncology-specific AI. That's a traditional priced round, but I guarantee they had a rolling fund or two feeding them capital in the months before that announcement. It's a way to keep the engine running while you negotiate terms for a larger round. Luna: So the rolling fund gives you a steady drip of cash, then you top it off with a big round when the time is right. That makes sense. Lucas: Exactly. And the market backdrop right now is interesting for this model. Look at ARK Genomic Revolution, ticker ARKG — up 8.5 percent in the last five days. That suggests investors are piling back into long-duration, high-risk bets. Rolling funds thrive in that environment because they give investors a way to deploy capital gradually without committing to a huge lockup. Luna: On the flip side, Coinbase is down over 9 percent in five days. Crypto volatility is still real. Would a rolling fund be a good vehicle for something like a crypto startup? Lucas: It depends on the thesis. If your startup's revenue is tied to crypto prices, a rolling fund might be a riskier proposition for LPs — they'd worry about cyclicality. But for a platform play, like a crypto infrastructure company, rolling funds could work because the capital need is more predictable. Luna: One thing I keep hearing from founders is that rolling funds let them build relationships with investors over time, rather than cramming all the due diligence into a three-week window. That sounds like a real advantage. Lucas: It is. And it's not just about the money — it's about the signal. When an investor commits to a rolling fund, they're saying 'I'm in for the long haul,' which can be a powerful signal to other potential backers. But there's a downside too. Luna: What's the downside? Lucas: Dilution. If you're raising on a rolling basis, you're constantly issuing new equity or tokens, which can dilute earlier investors if not structured carefully. Plus, the administrative burden is real — you need to manage monthly or quarterly subscriptions, which isn't trivial for a small team. Luna: So it's not a free lunch. But I'm seeing more funds adopt this model on the LP side too. AngelList has made it dead simple to set up a rolling fund as a GP. What's your take on that trend? Lucas: It's democratizing access to venture capital. Now a solo GP with a strong track record can raise a rolling fund and deploy capital quickly, without the overhead of a traditional fund. That's good for founders because it means more capital sources. But it also means more noise — there are a lot of rolling funds out there now, and not all of them have a clear thesis. Luna: How do you pick the right one as a founder? Lucas: Look at the GP's track record, sure, but also the composition of their LPs. Are they strategic investors who can open doors? Or just passive check-writers? The best rolling funds bring more than money — they bring network and expertise. And the terms matter too. Some rolling funds charge a 2 and 20 structure but with a shorter lockup. Others are more founder-friendly. Luna: Can you give me a concrete example of a startup that used a rolling fund effectively recently? Lucas: Sure. There's a biotech startup I follow — not a big name yet — that used a rolling fund to bridge between a seed round and a Series A. They had a long R&D cycle, so they needed capital to run experiments for about 18 months. Instead of doing a bridge note, which would have been expensive and risky, they set up a rolling fund with a handful of existing investors. That gave them the runway to hit a key milestone — positive Phase 1 data — which then let them raise a Series A at a much higher valuation. Luna: That's a great example. So rolling funds aren't just for software startups with quick revenue. They work for deep tech and biotech too. Lucas: Absolutely. Any startup with a long development cycle can benefit. And the key is matching the fund's duration to your milestones. If you need 12 months of runway, set up a 12-month rolling fund with quarterly commitments. If you need 18 months, adjust accordingly. Luna: What about the investor's perspective? If I'm an LP, why would I choose a rolling fund over a traditional venture fund? Lucas: Liquidity. With a traditional fund, your money is locked up for 10 years. With a rolling fund, you can commit for a year or two, then reevaluate. That's appealing for family offices and high-net-worth individuals who want venture exposure but can't stomach a decade-long lockup. Plus, you get a more granular view of the portfolio because the GP has to report more frequently. Luna: Makes sense. But all that reporting adds overhead. Do you think rolling funds will eventually become the dominant model for early-stage investing? Lucas: I don't think they'll replace traditional funds entirely, but they'll carve out a significant share. We're already seeing some of the top-tier micro VC firms launch rolling fund vehicles alongside their flagship funds. It's a way to offer different products to different LPs. The trend is clear: more flexibility, lower barriers, and a closer alignment between capital deployment and startup milestones. Luna: That's a good note to end on. But before we wrap, I've been thinking about something you said earlier about rolling funds being a complement. It feels like they're becoming part of the standard toolkit for founders, not just a niche strategy. Lucas: Honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. It's what keeps these conversations ad-free and focused on what's actually working for founders. Luna: Yeah, we don't take sponsor money, so listener support really is what keeps us going. If the show is useful, that's the place. Lucas: And back to rolling funds — I think we'll see more innovation in the structure itself. Maybe rolling funds with performance-based fees, or funds that automatically reinvest returns. The model is still young. Luna: Agreed. It's one of those trends that feels like it's here to stay, and it's changing how both founders and investors think about capital. Lucas: Next time, we'll look at how startups are using revenue-based financing as an alternative to equity. That's another model that's gaining traction fast. Luna: Looking forward to it. For now, if you're a founder exploring rolling funds, start small, pick the right GP, and match the duration to your milestones. Lucas: That's the playbook. See you next time.