Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Why Startups Are Raising on Rolling Valuations in 2026
Transcript
- Lucas: So we talk a lot on this show about how startups raise money — SAFEs, rolling funds, the death of the pitch deck. But there's one structural shift I think is flying under the radar, and it's starting to reshape how priced rounds actually work. Luna: What's the shift? Lucas: Rolling valuations. Instead of setting one fixed valuation for a round and raising it all at once, more startups are doing priced rounds with multiple closes, where each close can happen at a different valuation — sometimes higher, sometimes flat. The round effectively re-prices as it goes. Luna: That sounds like a hybrid between a traditional priced round and a rolling fund. But doesn't that create weird incentives for later investors? Lucas: It absolutely does. And that's the interesting tension. On one hand, if the company is gaining traction during the raise, a rolling valuation lets the founder capture that upside without leaving money on the table. On the other hand, early investors who came in at a lower valuation might feel like they got a better deal — but they also face more uncertainty about the final cap table. Luna: Right, because if the valuation goes up at each close, the earlier investors' ownership percentage gets diluted if they don't participate again. Lucas: Exactly. And some funds are starting to build anti-dilution provisions into their term sheets specifically for rolling rounds. But the trend is real. I was looking at a few data points from Q1 this year — about 15 percent of priced rounds under $20 million in the US had some form of rolling valuation. That's up from basically zero two years ago. Luna: Interesting. And it's not just early stage. I know at least one AI startup that raised a Series B at a $400 million valuation in the first close, then came back three months later at $480 million for the final close. The press release called it a $480 million round, but the actual pricing was tiered. Lucas: Yeah, and that's where the optics get tricky. The company gets to say they raised at the higher number, which helps with momentum. But the cap table is more fragmented — you have multiple valuation layers, which can complicate things down the road, especially in down rounds or acquisitions. Luna: Let's talk about the founder perspective. If you're a founder raising a Series A today, what's the argument for a rolling valuation versus a single close? Lucas: The main argument is flexibility. You can start raising with a smaller group of lead investors at a valuation that reflects your current traction, but with a mechanism to increase the price if you hit milestones during the raise. It's almost like a contingent valuation — but without the complexity of earnouts or Milestone-based pricing. Luna: But doesn't that also signal to the market that you weren't confident enough to set a single price? I mean, if you're a hot startup, you can usually get a round oversubscribed in a few weeks. Lucas: That's the conventional wisdom, and it's still true for the top decile of companies — the ones that have massive revenue growth and a clear path to IPO. But for everyone else, the fundraising environment in 2026 is more selective. We saw that this week with the sell-off in high-growth names. Rivian down 13 percent in five days, Palantir down 7 percent. Even Apple and Microsoft sold off. The public market is punishing companies that don't have a clear profitability story. Luna: So rolling valuations are partly a response to that uncertainty. If you can't predict what your valuation will be three months from now, you build in a mechanism to adjust. Lucas: Precisely. And it also changes the dynamic with investors. Instead of a binary 'yes or no' at a fixed price, the conversation becomes more continuous. A VC might say, 'We're in at $50 million, but if you hit $2 million in ARR by the close, we'll support a bump to $55 million.' That's a very different negotiation. Luna: And for the VC, it reduces the risk of overpaying if the company doesn't hit its milestones. They can cap their entry price. Lucas: Right. So it's not just a founder-friendly tool. It can also protect investors from adverse selection. But there's a downside: it creates complexity on the cap table that can make future rounds harder. If you have five different valuation layers in your Series A, the Series B investors have to model that into their dilution calculations. It's messy. Luna: And it can affect employee equity too. If the 409A valuation is tied to the rolling valuation, you could have different strike prices for options granted at different times during the raise. Lucas: That's a really good point. The 409A is supposed to be a snapshot of fair market value, but if the company is raising at multiple prices within a few months, the board has to decide what the common stock is worth. It can lead to some creative accounting. Luna: Are there any notable startups that have used rolling valuations successfully? I'm thinking of the AI space especially. Lucas: There are a few. One that comes to mind is a company in the legal tech space — they raised a Series A with three closes over six months. First close at $30 million valuation, second at $36 million, third at $42 million. They used the time between closes to land two major enterprise contracts, which justified the step-ups. The lead investor structured it so that their pro-rata was protected across all closes. Luna: So they kept the same lead investor, but brought in new syndicate members at higher prices. That seems like a good model for companies that have a clear milestone path but need time to prove it. Lucas: Exactly. And it's not just for Series A. I'm seeing it creep into seed rounds too, especially for deep tech startups that have long development cycles. They might raise a seed round with a rolling valuation tied to FDA milestones or manufacturing milestones. Luna: That actually makes a lot of sense. Instead of a bridge round that signals weakness, they can just extend the seed round at a higher price. Lucas: Right. And that's the key: framing matters. If you call it a 'rolling close' or 'tranched round,' it sounds proactive. If you call it a 'bridge' or 'extension,' it sounds like you couldn't close. So a lot of this is about narrative management. Luna: Speaking of narratives — we talk a lot on this show about how fundraising is changing. If listeners find these conversations useful for their own fundraising or investing, there's a simple way to support the show that keeps it ad-free. Lucas: Yeah, it's a small thing but it makes a big difference. A coffee's worth of support at buy me a coffee dot com slash fexingo helps us keep the episodes coming without any sponsorship interruptions. Luna: And we really appreciate it. Now back to rolling valuations — one thing I want to dig into is how this affects the lead investor dynamic. If you have a rolling round, do you still need a lead? Or can you do it without a single anchor? Lucas: That's a great question. In practice, you almost always need at least one anchor investor to set the initial valuation and terms. Otherwise you get a chaotic process where each investor tries to negotiate their own price. The lead provides the pricing anchor and the governance structure for the round. Luna: So the lead sets the base valuation, and then the follow-on closes can only go up from there? Or can they go down? Lucas: In theory, they can go either way. But in practice, if the valuation goes down, it signals that the company missed its milestones, and that can be very damaging. Most rolling rounds I've seen have a floor — the lowest price is the first close, and subsequent closes are at the same or higher price. If you need to go lower, you're basically doing a down round, and you'd restructure the whole thing. Luna: So it's really a one-way ratchet upward. That makes sense from a signaling perspective, but it also means the first close valuation effectively becomes the floor. Lucas: Exactly. And that puts a lot of pressure on the lead investor to get that first valuation right. If they set it too high, they risk overpaying. If they set it too low, the founder might walk away or take a competing offer. So it's a delicate balance. Luna: I want to ask about the legal docs. Does a rolling valuation round require a different kind of term sheet? Or can you just add a clause to a standard Series A document? Lucas: Most firms are using a modified term sheet that includes a 'valuation adjustment mechanism' or 'subsequent close pricing' clause. It specifies how the valuation for later closes is determined — usually based on a formula tied to revenue or user growth, or simply at the discretion of the board with investor consent. Some lawyers are also adding drag-along provisions to ensure later investors agree to the terms of earlier investors. Luna: So the legal complexity is higher. That means legal fees are probably higher too, which could be a barrier for very early-stage startups. Lucas: It's a trade-off. You pay more in legal fees upfront, but you avoid the cost and distraction of doing a separate bridge round later. For startups that have a clear plan and good legal counsel, it can be net positive. Luna: And what about the tax implications? If you have multiple valuation layers, does that affect the company's tax basis or the investors' capital gains? Lucas: I'm not a tax expert, but generally, each close is treated as a separate issuance for tax purposes. So investors have different cost bases depending on when they bought in. That can complicate things at exit, but it's manageable with good record-keeping. Luna: So rolling valuations are here to stay, at least for a while. Do you think they'll become the norm for Series A rounds in the next year or two? Lucas: I think they'll become a standard tool in the fundraising toolkit, but I don't think they'll replace the traditional priced round entirely. For companies with very high traction and strong market timing, a single close at a premium valuation is still the cleanest path. But for the majority of startups that face some uncertainty — which is most of them — rolling valuations offer a pragmatic middle ground. Luna: It's another sign that the fundraising landscape is becoming more customized. One-size-fits-all rounds are giving way to structures that reflect the specific risk and milestones of each company. Lucas: And that's ultimately a good thing for founders and investors alike, as long as everyone understands the trade-offs. Rolling valuations are not a magic bullet — they require more negotiation, more legal work, and more trust between parties. But done right, they can align incentives better than a static round. Luna: All right, next episode we'll look at how rolling valuations interact with SAFE notes — because that's another layer of complexity. Lucas: That's a perfect follow-up. Thanks for listening.