Hazic Investments: Rolling Funds Explained

[Bryan Guerrero]

1. What is a rolling fund?

A rolling fund, sometimes referred to as a subscription fund, is a type of investment that aims to

make the venture fund asset class more accessible by allowing its managers to share deal flow

with fund investors on a quarterly subscription basis.

2. How will rolling funds impact the venture capital industry?

While the impact that rolling funds will have on the venture capital industry is not yet known, it

is predicted that it would be a better way to raise capital and invest money when compared to

traditional fund sources. If many rolling funds open up, this would impact early-stage investing.

3. What is the technology behind rolling funds?

Currently, AngelList offers an early-access program for Rolling Venture Funds through their

platform. This infrastructure includes:

Fund management and accounting requirements:

● Legal documents and regulatory filings

● Bank accounts and special purpose vehicles (SPVs)

● Fund pages and marketing documents

● Tax reporting and Schedule K-1 forms

Investor management dashboards:

● Fund subscription management

● Subscription status and auto-renew

● Minimum term commitments

● Fund distributions

Portfolio management software:

● Investment and company tracking

● Portfolio valuations

● IRR and other performance calculations

4. How does an LP subscribe to a rolling fund?

LPs can apply to subscribe to rolling funds through the AngelList platform. This platform

handles the onboarding of accredited investors to their platform. When an LP subscribes to a

rolling fund, they are committing to making a capital contribution to the next quarterly fund.

5. How much does an LP need to contribute to a rolling fund?

This amount is decided by fund managers who set the specific terms and investment details for

their rolling fund. A typical minimum quarterly subscription ranges from $6, 250 per quarter to

$25,000 per quarter. It is entirely up to the fund manager’s discretion.

6. Does a rolling fund have to deploy all its capital every quarter?

If a fund doesn’t use all of its capital in a given quarter, the remaining capital balance is

automatically rolled into the next quarterly fund as additional capital from the fund’s currently-

participating subscribers.

7. What are the major implications of a quarterly subscription cycle for rolling funds?

A quarterly subscription cycle for rolling funds is a benefit for fund managers because they can

raise money for a rolling fund incrementally and it takes off the pressure of having to raise those

funds all at once or in a limited time frame.

8. What does the fee structure for rolling funds look like?

Some typical fees for LPs include:

● Management fees (approximately 2% per year over the life of the fund, calculated and

charged quarterly)

● Carry (approximately 20%, sometimes increasing to 25% or more after a 1–3x

multiple of invested capital is returned to investors)

● “Recycle” fees (sometimes, a fund manager will reinvest a portion of the management

fees back into their fund, which lowers the total effective cost)

● Minimum term commitment (anywhere from a single quarter or four quarters, to four

or more years)

It is important to note that fund management platforms like AngelList also charge a fee for their

platform services. These and other fees are charged to rolling funds for access to the platform,

and they will be disclosed in the terms offered to LPs.

9. How do rolling funds handle distributions?

Distributions for rolling funds are similar to typical funds. Rolling funds are structured as a series

of limited partnerships, so subscribing LPs receive distributions (net of fees) from the quarterly

funds in which they’ve contributed capital.

10. What are the major benefits of rolling funds?

Rolling funds can offer unique benefits to LPs, founders, and GPs.

LPs

For LPs, rolling funds offer an easy way to diversify and invest in startups. Since GPs may

commit to only investing through their rolling fund, and not through any other vehicle, a rolling

fund offers a simple way to capture all of a GP’s deal flow in a single investment.

Founders

For founders looking to raise capital, rolling funds can add a lot of value beyond the money they

provide. Rolling funds may be set up to pursue specific opportunities and focus on seemingly

“niche” verticals, which in turn leads to a better dynamic between rolling funds and the founders

they fund.

GPs

For GPs and operators, rolling funds can lower the costs associated with setting up and operating

a fund. The 506(c) Rule also means rolling funds are publicly marketable. This gives fund

managers a major new channel to reach out and talk to accredited investors.