Lions, Tigers, and Rolling Funds, Oh My: Why We Ultimately Decided not to do a Rolling Fund

“The danger is that people may mistake what is basically a change in vocabulary for a change in behavior, practices, and attitudes. While practically all Americans have learned to talk inoffensively, not enough have learned to think differently, nor act positively.” ~ Whitney M. Young

There has been a lot of talk recently about AngelList’s (AL) new fund structure of Rolling Funds. I have to admit they seem really cool and we thought really long and hard about raising one ourselves but ultimately decided against it. Here’s why.

Rolling Funds are pretty cool though

Rolling Funds are really cool and make it easier to raise a fund as a first time/emerging fund manager. AL will handle setting up the fund for you which can help reduce legal fees. They set you up with a website where potential investors in the fund or LPs can just go to and submit to be an investor, without even having to meet the fund manager. They even handle the process to verify that someone is an accredited investor before they can make the investment in the fund. These LPs then subscribe to a number of quarters to be a part of the fund. This means their money is spread out over that time.

Traditionally a fund manager would have to wait until they have a certain percentage of the fund or the total fund amount committed before they could have access to the money to start investing. With a rolling fund, a manager can get access to the capital as soon as it’s committed. No need for a closing date. One of the biggest advantages of a rolling fund is they are raised under the 506(c) designation. This means the fund manager can publicity talk about their fund and the fundraise. The ability to do so is an incredibly powerful tool especially for fund managers that have a public brand and following.

But, you know there is always a But

There are some drawbacks to the Rolling Fund. While the quarterly subscriptions give you access to the capital immediately, they also put you in a position of always fundraising. You literally can never stop fundraising. Rolling Funds are still very new, which means a lot of institutional LP or investors who can write much larger checks into a fund haven’t gotten comfortable with them yet. This can put a limit on the initial size of a fund due to the limited number of LPs a fund can have.

One of the biggest issues with rolling funds, and the one that was a deal-breaker for us at RareBreed, is the way LP returns are handled. In a rolling fund structure LPs only get returns from companies that were invested in during a quarter they were an LP in. This means if an LP subscribes for 8 quarters and the fund invests in a unicorn in quarter 9, all the LPs that were in the first 8 quarters and not quarter 9 get nothing from that investment. Now over time, the idea is this will create FOMO and lead LPs to keep investing in a fund. For us at RareBreed, this didn’t feel right. Especially because many of our earliest LPs are personal mentors and friends who have been a part of my journey over the last 10 years and they are making investments in our fund. The idea of them missing out on companies we would have invested in after they were literally the reason RareBreed even exists didn’t work for us.

What’s the solution?

After evaluating Rolling Funds, we took a step back to figure out what we wanted to do. We knew we didn’t want to do a Rolling Fund but we did want some of the advantages. That’s when it hit us. Many of the advantages that Rolling Funds provide are based on the fundraising designation and some front-facing technology. These were things that could be applied to any fund. It was the issues/disadvantages that were structural and unique to a Rolling Funds.

So we started to plot out how to do a traditional fund but with the technology to support similar features as a Rolling Fund. First, we set up a traditional fund that we would fundraise through 506(c) so we could talk about the raise publicly. Then we had to find a fund admin that would be helpful and flexible enough to let us try this out. We settled on Carta. We were already planning to use Carta for cap table management so it made sense to use them for fund administration too. They have been super helpful in this process with us, shoutout to Kevin Macario and Andrew Brown.

Next, we set up a website that outlined a bit about RareBreed Ventures with a button for anyone to click on and become an LP. After that, we set up a typeform to collect potential LPs information and let them self identify as accredited investors or not. What happens after this was what we thought was going to be the tricky part.

We wanted to send potential LPs directly to a form where they could input how much they wanted to invest in the fund and some other data points that would pre-fill subscription docs and an LPA for them to digitally sign. This would be similar to the AngelList’s Rolling Fund experience. We as a team were ready to figure out how to code all this up to make it work. That’s when the team at Carta told us they worked with Anduin, a platform that turns subscription docs into a customizable guided digital form.

Boom, and just like that we were in business. We had the whole work flow set up. Now to become an LP in RareBreed Ventures the flow goes like this:

1. A potential LP sees something about RareBreed Ventures on Twitter, Facebook, Linkedin, Medium, TV, a Zoom Conference, anywhere
2. Go to our website RareBreed.VC
3. Click on the link “Become an LP”
4. Fills out a very short form
5. Lastly, get sent to our subscription docs on Anduin.
6. Or they get an email directly from me with a link to our subscription docs

That’s the flow. Once the investor fills out the subscription docs Carta and their team handles the rest. Next, we had to figure out how we would get access to the fund right away. Well for this part we needed to work with the Carta team. We worked with them and set it up to do weekly closes. So, whoever signs up to be an LP in the fund that week will close every Friday. This allows us to get the fund to deploy without having to wait for specific amounts of capital raised.

Now We are in Business

And there you have it. A traditional fund that has many of the advantages of a rolling fund. We launched this officially to the public a week ago and since then we have had more than a dozen potential LPs sign up to be in the fund who we have never met or spoken to. It’s pretty cool I have to say.

For us at RareBreed, all of this was done in an effort to fundraise in the most efficient but equitable way possible. As much as we care about supporting and being kind to the amazing founders we look to invest in. We want to be just as kind and equitable to our LPs. This is also why we will be sharing our deal flow with our LPs and bring them in for co-investment opportunities. At the end of the day, our goal is to be a RareBreed firm investing in RareBreed Founders. If you are an accredited investor and are interested in investing in RareBreed Ventures please visit RareBreed.vc