We’ll start with a brief overview of Rolling Funds, in case you haven’t been following their development. (If you have, feel free to skip!)
In RollingSouth, an investor commits an amount (say $5,000) per quarter for a specific number of quarters (say 4), and funds this subscription until they have invested the total ($20,000). They can keep going for more quarters too. Funds are raised publicly and accept new subscriptions continuously.
An investor ends up owning her share of the portfolio companies invested in during her investing quarters – so, say, 16 companies (4 per quarter) over that year of investing. The exact ownership varies depending on how much is invested and how many other investors are involved.
When the portfolio companies are sold, proceeds return to her. Along the way, she pays fees:
- To the fund manager: 1% management fee in RollingSouth (usually 2%) for 10 years and 15% (fund level) carry (usually 20%)
- To AngelList: a 0.15% management fee, and 5% of the carry if the investor came to the fund through AngelList.
Are Rolling Funds a big deal? On the advocates side, Rolling Funds are the greatest innovation in early stage investing in the last decade – especially for fund managers. They will “democratize fund formation”, “a decentralized fundraising process that’s good for everybody”, “the single most interesting investing related innovation I’ve seen in a long time” and “about to roll over a whole lot of VCs”.
Sounds good! If this model helps (good) potential new fund managers form, and they make on average successful investments, Rolling Funds sound like a good thing.
For the skeptics, there are concerns about the new model, particular around the limitations for investors (like costs being too high, track records unproven, and fund managers having too many outside distractions) and founders (like undesirable publicity) – and more generally that these funds will remain just a rounding error in total VC funding. There is probably some truth here too.