Rolling Funds are turning 280-day Sand Hill Road-shows into 280-character tweets.
This will impact the early-stage venture capital landscape. The only question is, to what degree?
For those who are unfamiliar, a Rolling Fund is an AngelList-invented investment vehicle which allows GPs to raise funds publicly and quarterly. For those who do not know what a GP is, a General Partner (“GP”) in this case is an investor raising funds to invest in startups. You can think of GPs traditionally as venture capital firms. GPs raise funds from Limited Partners (“LPs”). You can think of LPs traditionally as large sources of money such as endowments, family offices, or high net worth individuals.
There is an ongoing trend in the startup investing ecosystem where it is becoming easier and more popular for individuals to succeed as GPs and/or LPs all on their own. These individual GPs and LPs have been coined solo capitalists and micro-LPs, respectively. Rolling funds seem poised to accelerate the rise of both solo capitalists and micro-LPs by making things easier and more attractive for each.
For solo capitalists (individual GPs), rolling funds shift the fundraising process from private to public, physical to digital, and periodic to recurring. Additionally, all of the administrative work is handled by AngelList so there is no friction in running a fund.
Naval Ravikant, the Silicon Valley guru who came up with the idea for rolling funds, described their function simply — “Raise anytime, raise anywhere.” I might take this one step further to say — “Raise anytime, anywhere, from anyone, by any means.” Admittedly, “anyone” really means any accredited investor and “any means” really means any means within the confines of the law, but it is close enough to demonstrate the power provided to solo capitalists by the innovation of rolling funds.
By eliminating the need for 280-day Sand Hill Road-shows and replacing them with 280-character tweets, rolling funds empower individuals with followings to become as formidable fundraisers and investors as traditional venture capital firms if they have the skill for it. Prime candidates for raising rolling funds include Twitter blue checks, Instagram influencers, and bloggers or podcasters or YouTubers with many subscribers, particularly those with demonstrable track records in investing or established expertise in a valuable niche.
For micro-LPs (small LPs), rolling funds decrease the price to play, increase startup exposure and portfolio diversity, and enable individuals to invest in other individuals, which could create a powerful loop.
Paul Anderson points out that a micro-LP can invest, for example, $5K in 5 GPs for 2 years. If each GP averages 10 investments per year, the LP gets a piece of 100 startups for their $200K of committed capital, which is typically what it would take to gain entry into a single VC fund. A single VC fund may well invest in 100 startups over the longer life of its fund but the diversity would not be as great nor the deployment as rapid as it would be by 5 rolling fund raising individuals investing in parallel. The commitment can also be shorter term (i.e. minimum 4 quarters) making it easier for micro-LPs who can be more agile than larger LPs to stop funding a GP and re-allocate their capital elsewhere practically at will.
Beyond the impact that rolling funds will have on solo capitalists and micro-LPs, they may also make things easier for the startups themselves. On the one hand, rolling funds will accelerate the availability of capital from this new category of empathetic early-stage investors who startups can turn to instead of, or in addition to, more traditional VCs and angel investors. On the other hand, I could see rolling funds becoming roll models (misspelling intentional) for startups who may seek a way to raise less money with less effort on a recurring basis the same way that rolling funds are enabling solo capitalists to. While this may have seemed like an impossible structure to convince a traditional VC or angel investor to commit to only several months ago, it now seems at least feasible that startups could begin raising rolling rounds from rolling funds in the near future.
I am excited to see how the innovation of rolling funds impacts early-stage investing. I would certainly consider raising one and investing in others if I had a larger following and was an accredited investor. Hopefully, one day soon I will have one, and I will be one.
For those who want to learn more about rolling funds, below are all of the resources I have read to date to gain my understanding of the innovation. Additionally, for those who want to follow the continued development of rolling funds, here is a list that I made on Twitter with all of the people I have seen actively involved with and/or writing about rolling funds.