What Is a Rolling Fund? How They Work & How to Invest

Rolling funds represent a relatively new investment structure within the venture capital landscape. This innovative vehicle is designed for continuous fundraising and the ongoing deployment of capital into new ventures. Its emergence has broadened access for a wider range of investors seeking to participate in venture capital opportunities.

Understanding Key Characteristics

Rolling funds operate on a continuous fundraising model, which distinguishes them from traditional venture funds that typically raise a fixed amount of capital during a defined period. They are structured to accept new capital commitments on an ongoing basis, often through regular subscription periods, commonly occurring quarterly.

This ongoing fundraising mechanism underpins the evergreen structure of a rolling fund, allowing it to operate without a predetermined end date or fixed lifecycle. Capital is continuously deployed into new investments, and as returns are generated from successful exits, they can be reinvested into subsequent opportunities, fostering a perpetual investment cycle.

Many rolling funds utilize a series LLC structure, which enables the creation of distinct investment portfolios or “series” within the overarching fund. This organizational approach permits the fund to manage multiple investment strategies or allocate capital to specific deals while maintaining legal separation between the different series.

Fund managers receive compensation through two primary mechanisms: management fees and carried interest. Management fees are typically calculated as a percentage of the committed capital, commonly ranging from 2% to 2.5% annually, and cover the operational costs of the fund. Carried interest, representing a share of the fund’s profits, usually ranges from 20% to 25% of any gains realized from investments.

Capital contribution in a rolling fund can vary, with some funds requiring an upfront commitment of capital from investors. Other structures may employ a capital call system, where investors commit to a certain amount but only contribute funds as they are needed for specific investments. This flexibility in capital deployment allows for efficient management of cash flow within the fund.

Regulatory Framework

Participation in rolling funds is generally limited to accredited investors due to regulatory requirements. An individual qualifies as an accredited investor by meeting financial thresholds: an annual income exceeding $200,000, or $300,000 jointly with a spouse, for the past two years. Alternatively, an individual can qualify with a net worth exceeding $1 million, excluding the value of their primary residence. This requirement ensures that investors possess financial sophistication and capacity to absorb potential losses.

Rolling funds typically rely on exemptions from registration under the Securities Act of 1933 to offer and sell securities without undergoing the full public registration process. A common exemption is Rule 506(c) of Regulation D. This rule permits fund managers to engage in general solicitation and advertising, provided that all purchasers are accredited investors and their status is verified.

Fund managers must adhere to various compliance obligations. These responsibilities include providing proper disclosures to investors regarding fund terms, risks, and performance. Managers are also required to implement Anti-Money Laundering (AML) checks on investors and maintain accurate and comprehensive records of all investor information and transactions.

Participating in a Rolling Fund

Individuals interested in investing in rolling funds, often referred to as limited partners, can discover opportunities through online platforms specializing in venture capital investments. Following reputable venture capitalists or industry leaders can also provide insights into new fund launches and investment opportunities.

The subscription process for an investor involves reviewing the fund’s terms and conditions, including details on management fees, carried interest, and capital commitment schedules. Once comfortable with the terms, investors complete formal subscription documents, which legally bind their commitment to the fund. Verification of accredited investor status, where investors must provide documentation to confirm they meet the SEC’s financial criteria, is also part of this process.

After subscribing, investors can expect periodic updates on the fund’s investment activities and performance. They may also receive capital calls as needed for new investments, depending on the fund’s structure, along with regular financial reporting to track their investment’s progress.

For fund managers seeking to establish a rolling fund, the process often involves leveraging specialized platforms that provide comprehensive administrative and compliance support. These platforms significantly reduce the operational burden on managers, allowing them to focus more on deal sourcing and portfolio management. Specialized platforms, such as AngelList or Allocate, play a significant role in facilitating the creation and operation of rolling funds. They offer integrated infrastructure for fundraising, handling investor onboarding and capital commitments. These platforms also assist with ongoing fund administration, including managing capital calls and distributions, and provide compliance support to ensure adherence to regulatory requirements.