Friday Letter: Got me on this rolling fund

I fully admit that when AngelList announced in early February that it would start offering rolling funds, I didn’t think that much of it. I figured it would appeal to some smaller angel investors, or maybe it would prove to be a nice side hustle for angel investors. But I reckoned that was about it.

Fast forward seven months, and I’ve had GPs and LPs talk to me about rolling funds in the last week. I know it’s a small sample size, but my sources say the rolling funds are already having an impact and are poised to stick around.

One of the GPs noted that there has been a lot of hype surrounding rolling funds. However, the GP was excited to see so many new operators-turned-investors come into the VC ecosystem. It would, in the long term, bring “democratization” into VC, the GP told me.

Rolling funds are investment vehicles that allow investors to raise a fund quickly via auto-renewing quarterly commitments, with the LP subscribing to a certain term. AngelList handles the back-office and fund management duties.

AngelList says the process removes the biggest pain point of being a new fund manager: fundraising. It also allows the investor to scale quickly as managers can accept new capital commitments at any time from new LPs.

And it’s not just individual LPs backing the funds. Brand name LPs are also getting into the mix, seeing it as a sort of scout program and a way to generate dealflow for their direct investing arms.

AngelList’s pioneering efforts look to be gaining momentum and the rolling fund managers I hear of most often are Sahil Lavingia and Cindy Bi.

Lavingia is founder of the company Gumroad and launched shl.vc. He says he is now investing $7 million a year in early-stage start-ups. Bi last month launched her rolling fund, called CapitalX, in which she raised $2 million in two weeks.

And yes, Bi is an investor in shl.vc, causing one LP I spoke with to remark that rolling funds are “cool kids investing in other cool kids and each other.”

There’s no denying that rolling funds provide a great way to help a young GP investor establish his or her credibility, build a track record and bring in more dealflow. And LPs likewise would see regular distributions in a rolling fund, akin to a typical VC vehicle, while gaining early access to rising venture managers and their portfolios.

Let me know what you think. Do you believe rolling funds have staying power or will they be short-lived?

I would love to hear from you. You can reach me at agoldfisher@buyoutsinsider.com and I’m open to voice and video calls.