A Beginners Guide to Rolling Funds
A brief overview of Rolling Funds and their impact on early-stage investing
What are Rolling Funds?
A new fundraising structure launched in 2020 by AngelList that allows fund managers to raise money on a continuous basis (mainly quarterly contributions)
Rolling funds enable fund managers to share deal-flow with LP’s (an investor who commits capital to a rolling fund) on a quarterly subscription basis
Rolling funds are publicly marketable and are always open to new LP’s
LP’s have the ability to stop their quarterly subscription to a Rolling Fund, or add more to their investments if they’re confident in their fund managers decision making
Rolling funds enable anyone with large networks (access) good instincts (judgment) and unique knowledge (industry experience) to become fund managers
How do Rolling Funds differentiate from traditional venture funds?
Rolling Funds can accept capital at any time, and start deploying capital right away
Traditional fund GP’s have to raise their fund’s capital in a short period of time — it’s a time consuming and stressful experience, and there’s an opportunity cost to taking too long to raise funds
Fund managers can’t raise additional capital during their most marketable moments, such as portfolio markups — they miss out on closing new LP’s until their next fundraise, which can be 5-10 years later
What are the major benefits of Rolling Funds to LP’s?
An easy way to access deal-flow
Control over capital contributions — commit more or less capital on a quarterly basis
Flexibility — enter and exit the fund as they please
Rolling Funds open up LP investing to smaller funds and individuals — typically depends on the fund but quarterly contributions can be any where from $1,000 - $25,000+
What are the major benefits of Rolling Funds to GP’s (fund managers)?
Lower costs associated with setting up and operating a fund — lowers the barriers to entry for emerging managers to get up and running
Fund managers can raise a fraction of a traditional fund and begin investing in startups right away, accept capital from new LP's at any time, and continuously increase the size of the fund so that they never need to raise another fund again — ultimately reducing time and friction in the fundraising process
Rolling Funds are publicly marketable (according to 506(c) rule) — RF managers can leverage large online followings to solicit investors and advocate for portfolio companies
AngelList handles a majority of the administration that comes along with starting a Rolling Fund — this includes legal docs, accounting requirements, investor management dashboards, portfolio management software, and much more
What are the major benefits of Rolling Funds to Founders?
Rolling Funds are normally started by ex-founders with particular areas of expertise and can bring direct value in a certain niche
Founder-friendly terms
Less pressure on the founders to pursue exit opportunities
How will Rolling Funds impact early-stage fundraising?
It’s still too early to tell what the impact of Rolling Funds will be on the venture industry, but if it does end up being a better way to finance innovation:
Compresses the fundraising cycle
Less barriers to entry = more fund managers
More competition for traditional VC fund managers = direct impact on pricing of early stage investing
Fund managers with non-traditional backgrounds will emerge
Who are some people that are leveraging Rolling Funds?
Austen Allred is the founder of Lambda School, a modern day coding bootcamp that leverages ISA’s (Income Sharing Agreements). Sahil Lavingia, who runs his own Rolling Fund, and an unofficial brand ambassador for Rolling Funds, put together a spreadsheet to gauge interest for an Austen Allred Rolling Fund and managed to get north of $30m in commits overnight (!!!!!). Both have large Twitter followings and this goes to show how much easier fundraising can be with the Rolling Fund structure.
Sahil also created a form to gauge commitment interest for emerging fund managers, which can be found above.
Some other examples of founders turned fund managers thanks to Rolling Funds:
Feel free to browse more Rolling Funds here.
Resources:
What’s a Rolling Fund and Why Are They So Hot Right Now — Modern Product Manager
How Rolling Funds Will Impact Fundraising — Visible.vc