Hot take: The advice you're getting about rolling funds is wrong. It feels productive, but it's a trap that's actively destroying your portfolio's potential. Let's talk about the uncomfortable truth.
I see it all the time. A founder, bright-eyed and full of ambition, comes to me for advice. They’ve built a decent MVP, maybe have a few early users, and they’re obsessed with one thing: setting up a rolling fund. They’ve read all the blog posts, listened to all the podcasts, and they’re convinced this is the key to unlocking a constant stream of capital and signaling to the world that they’re the next big thing.
I’m here to tell you that’s terrible advice.
I’ve been in Silicon Valley for a while now. I’ve built and sold two companies, one to Gusto and another to Gfycat. I’ve written over 200 angel checks into companies you’ve probably heard of, like Anthropic, OpenAI, and Scale AI. I’ve seen what works and what doesn’t. And I can tell you with absolute certainty that for 99% of early-stage startups, a premature obsession with rolling funds is a fatal distraction.
It’s a seductive idea, I get it. The promise of “always be raising” without the pressure of a traditional fundraising cycle. It feels like you’re taking control, building momentum one small check at a time. But it’s a mirage. It’s a productivity trap that makes you feel like you’re moving forward when you’re actually just spinning your wheels, burning your most valuable resource: your time.
The Siren Song of the Rolling Fund
Why is everyone so obsessed with this model? It’s easy to see the appeal. The traditional fundraising process is brutal. It’s a full-time job for months on end, filled with rejection and uncertainty. Rolling funds seem to offer a way out.
- The illusion of momentum: Every new investor, no matter how small the check, feels like a win. You can tweet about it, add their logo to your website, and create the perception of a company on the rise.
- Lowering the bar: It’s easier to convince someone to write a $5,000 check than a $50,000 one. You can tap into your extended network, your friends, your family. The pool of potential investors seems infinitely larger.
- Avoiding the “no”: A traditional fundraise is a binary event. You either succeed or you fail. A rolling fund feels like a continuous process. There’s no single moment of failure, just a series of small wins.
But this is precisely why it’s so dangerous. It’s a slow bleed, a death by a thousand cuts. You’re so focused on collecting small checks that you lose sight of the bigger picture.
The Psychological Trap
Beyond the tactical errors, there’s a deeper, more insidious psychological trap at play. The constant validation of small checks creates a dopamine loop. You get a notification, you see a new name on your cap table, and you feel a rush of accomplishment. It’s addictive. It makes you feel like you’re winning.
But you’re not winning the real game. The real game is building a product that customers are desperate for. The real game is finding a distribution channel that you can scale. The real game is building a team that can execute on your vision. The rolling fund becomes a proxy for real progress. It’s a vanity metric that distracts you from the hard, unglamorous work of company building.
I talk about this concept in my book, "Becoming Top 1%". It’s about focusing on the inputs that actually drive outlier success, not the outputs that just look good on the surface. A long list of small investors is a surface-level output. A fanatical user base is a core input. Don’t confuse the two.
Real Stories from the Trenches
I’ve seen this movie play out more times than I can count. Here are a few examples that stick with me.
I remember one founder, let’s call him Alex. Incredibly charismatic, a natural salesperson. He set up a rolling fund and was brilliant at it. He was constantly tweeting about new investors, celebrating every small win. He raised over $200,000 in his first six months, all in tiny increments. But while he was playing the role of the master fundraiser, the product was stagnating. He wasn’t talking to users, he wasn’t shipping new features, he wasn’t iterating. The company ran out of money and died. The sad part is, he had a great idea. But he fell in love with the idea of being a founder, not the hard work of building a business.
Then there was the team that had a hot start with their rolling fund. They got a few well-known angels in early, and the momentum was real. But then, the market shifted. A few of their key metrics dipped. The rolling fund dried up. Suddenly, what had been a signal of strength became a public signal of weakness. Everyone could see that the momentum had stalled. When they went out to raise a proper seed round, investors were spooked. The failed rolling fund was an anchor around their necks. They couldn’t escape the narrative that they had peaked too early.
Finally, I think of a founder who was a brilliant engineer. She was building a deeply technical product that had the potential to be a game-changer. But she was convinced she needed a rolling fund to get started. She spent hours every week managing the legal paperwork, the investor updates, the constant small talk. It was a massive distraction. Her time would have been infinitely better spent building her product and getting it into the hands of a few key design partners. She eventually realized her mistake, shut down the rolling fund, and raised a proper seed round from a handful of strategic investors who could actually help her. But she lost six months of precious time.
The Math Doesn’t Lie: A Messy Cap Table is a Red Flag
It’s not just about the distraction. The math of a rolling fund is often terrible for founders. You’re creating a messy cap table with dozens, sometimes hundreds, of small investors. This can be a major red flag for institutional VCs down the line. They don’t want to deal with the administrative headache of managing a hundred small-time angels.
Imagine you’re a partner at a top-tier VC firm. You’re looking at two companies. Company A has a clean cap table with a handful of strategic angels. Company B has a cap table with 150 investors, most of whom you’ve never heard of. Which one looks like a more professional, well-run operation? It’s not a hard choice.
More importantly, you’re giving up equity at a low valuation without the benefit of a large cash infusion that can actually move the needle. You’re trading slices of your company for pocket change. It’s a short-term fix that creates long-term problems.
Think about the opportunity cost. Every hour you spend managing your rolling fund is an hour you’re not spending on what actually matters:
- Building a product that people love.
- Talking to your users and understanding their pain points.
- Finding a repeatable, scalable go-to-market motion.
These are the things that create real value. These are the things that will attract serious investors when the time is right.
A Better Way: The Counterintuitive Path to Massive Returns
So what should you do instead? It’s simple, but not easy.
1. Build a great business first. Full stop. Obsess over your product, your users, and your metrics. Get to a point where the business is so compelling that the money has to follow. When you have real traction, you have leverage. You can dictate the terms of the conversation. This means getting your hands dirty. It means spending hours in customer support chats. It means writing code until 3 AM. It means doing the unscalable things that allow you to learn and iterate faster than anyone else.
2. Build genuine relationships with a small number of high-value investors. These are people who can write meaningful checks, who have deep industry expertise, and who can open doors for you. You don’t need a hundred investors. You need a handful of true believers. Identify the 10-15 people in the world who would be the absolute best partners for you. Research them. Understand their thesis. Find a warm introduction. And then build a real relationship with them over time. Send them updates. Ask for their advice. Show them your progress. By the time you’re ready to raise, they’ll already be bought into your vision.
3. Raise a real seed round when you’re ready. Don’t dribble out your equity in a rolling fund. Wait until you have a clear plan for how you’re going to use the capital to get to the next level. Raise a round that gives you 18-24 months of runway and allows you to focus on execution. Your goal is not to raise as much money as possible. Your goal is to raise the right amount of money from the right people at the right time.
I know this is not what the VCs on Twitter are telling you. They have their own incentives. They want to see a constant stream of new deals, and rolling funds are a great way to generate that. But you have to play your own game.
Don’t fall for the hype. Don’t get distracted by the vanity metrics of a rolling fund. Focus on building a real, sustainable business. That’s the only thing that matters. That’s the only way you’re going to build something of lasting value. And that’s the only way you’re going to generate the kind of returns that will change your life.
Frequently Asked Questions
Do all experts agree with this view?
No, and that's fine. The best ideas in business are often contrarian. I share my perspective based on my experience and data, but I encourage you to seek out opposing viewpoints and form your own conclusions.
What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 200+ startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.
How can I apply this thinking to my own situation?
Start by identifying the core principle behind the opinion, not the specific example. Then ask yourself: does this principle apply to my context? If yes, test it in a small, low-risk way before going all in.