What’s a Rolling Fund? (and Why Are They So HOT Right Now)

If you guys are looking to raise capital for your firm and you haven't heard about a rolling fund, it is an absolute game changer, guys. If you're looking to raise capital for your firm, whether it's a traditional fund or a rolling fund, I'm going to explain to you in today's video why you should consider a rolling fund over a traditional fund. Hey guys, my name is Akhil Jabbar and welcome to another video. I'm the GP and Managing Director at Horizon Capital, where we help companies from $1 million to $5 million ARR exit, scale, and take their business to the next level. We've now helped over 7 companies in our portfolio grow exponentially by working with us, and that's what we're planning to do with our upcoming rolling fund, which we're planning to roll out, and it's been an absolute game changer when it comes to the investment space. Now, we're a micro private equity firm. We're not a traditional private equity firm where they go out and raise a complete fund and go and buy big companies. We're at a smaller space where our companies we're buying are generally around, you know, anywhere between $1 million to about $10 million in valuation when we're buying these companies. We looked at different options when we wanted to buy our companies. I want to share with you guys why you guys should consider and look at the advantages of maybe considering a rolling fund if you're looking to start up your own fund versus a traditional fund, which everybody's more accustomed to. So in both cases, when you're looking to raise a fund, you're going to go out and you're going to try to find investors. And these investors are known as your limited partners. Okay. And then both cases, you need to find investors who are going to put capital into the fund. And with those funds, you're going to go out and buy companies, right? So that's pretty straightforward. But the difference between the two is that with a rolling fund, it's not a one-time fundraising process. With a rolling fund, you're actually Getting commitments every single quarter becomes a quarterly subscription. When investors contribute, they can come in every single quarter. They can reduce their amount, they can stop their amount, they can increase their amounts every single quarter. They can adjust their investment and input based on the total pool or the total pie of the fund that you create. Now, you guys are probably familiar with a normal fund, okay? And how that works is you're going to say, look, I'm going to raise a single fund. Let's call it $100 million. Okay, I want to go out and find $100 million across a broad range of investors, and maybe I'm going to go out and create that fund, which is going to be super expensive. A bunch of legal work, documentation, fund structures, accounting work is going to cost you tons of money. It's not abnormal for, you know, these fees to add up to be over $100,000, if not even more, sometimes even $200,000, $300,000 if you're raising a $100 million fund. Let's, let's kind of quickly talk about what are the differences between a rolling fund and a traditional fund. Okay. So like I said, the first one is the process of raising the fund. With a traditional fund, you're going to do it one time. Okay. You're going to find that $100 million. You're going to decide on raising that $100 million and you're going to build out all your documentation, the process, the legal work, the structure. And once you have that structure set up, okay, you've spent $100,000, $200,000 upfront. Now you're going to go out and try to raise money for that single fund. So every single LP or investor that comes in is going to subscribe to that fund. So until you reach that $100 million, you're going to continue to raise, raise, raise, add money to that pool until you reach that cap. So there's a cap here, $100 million. That's the pie you're working with, and you're going to keep adding, let's say, half a million dollars, $250,000, a million dollars, So let's say you're going to have at least, let's say, 100 different investors, okay, different LPs into that overall fund. So let's say each of these are putting $1 million and that's your minimum, okay? These are high net worth individuals who are coming in for this fund or family offices or fund of funds or pension funds. So let's say they come in for $1 million each. You're going to have 100 pieces of pie to share across the $100 million fund, okay? Once you're done, that's it. You now That fund becomes closed and that is it. Those 100 people are the only people who can come in and they can't get out until the fund is complete. That's number one. The difference is now when you talk about a rolling fund, it happens on a continuous basis. So let's say I want to decide to raise $100 million. I don't need to do that all in the first month or the first year. I can have 50 investors put in $100,000 for $5 million every single quarter for the first quarter. So first million— first quarter I get $5 million. The second quarter I decide to find 50 more investors. So now the first 50 are going to add another $5 million and I got 50 more who are going to add another $5 million. So quarter 2 comes, I now have $15 million and see the pie increases over time, but it doesn't all have to be at the same time and you can deploy that capital at any time. Okay, so let's say in the first quarter I have the $5 million raised and I go and buy a company for $5 million. Okay, next quarter comes around, I have that extra $10 million coming in. I can sit on it, I can wait for the right deal, or I can invest that $5 million. And the shares adjust every single time the more investors come in. The beauty about a rolling fund is you can have over 250 investors into this overall pool. So over time, you don't need people coming in for $1 million. They can come in for as little as $5,000 a quarter. The nice thing is this opens up a door to a lot more investors. So people who don't have $1 million, who don't have $500,000 to invest into your fund, you can open it up to people who have $5,000 a quarter to invest. And maybe over a year they come in for $20,000 as the fund grows, as the performance grows, and more and more companies are acquired in that fund. That's the beauty about a rolling fund over a traditional fund. Second part is the overall flexibility for investors. Okay, this is huge. When you're investing in a traditional fund, an LP or the limited partner is going to come in, And once they come in for that capital, they're going to have to stay until they get back their capital, until the fund is closed, until they distribute all the profits or the companies have been sold off, acquired, shut down, whatever. So that's a typical commitment of anywhere between 5, 7, or even 10 years. With a rolling fund, you're super flexible. Every quarter that comes around, you can decide, look, this quarter I'm going to come in for $5,000. Let's see how it goes next quarter. You know what? I've got $20,000 more. I'm going to come in for another $20,000. Or maybe the quarter after that, I don't like how things are going. I'm going to withdraw that $20,000 that I put in last quarter. Okay. And that's the beauty about it. It's so flexible. People can come in and out and sell their shares of the overall portfolio and the percentages just adjust based on that. So that flexibility is huge for any investor who wants to invest in a rolling fund. And the last point of what I want to share of the differences is the fees involved. Okay. Like I said, in a traditional fund, the fees are insane. They're looking at, you know, anywhere $100,000, $200,000 just to get that overall structure set up for a traditional fund. Now with the rolling fund, you can do this all directly through Angel. If you haven't heard about angel.co, you can check out their rolling fund page and their management fee is only 0.15%. A traditional private equity firm, what they're charging is 1%, 2% just on the initial fee, sometimes even 3%. Okay? So they're charging 0.15% over 10 years. And if they bring in, they also market your rolling fund to their investors. And if they bring in any investors, they're going to take 5% carry, which is your fee over the performance of the entire fund. Over the— as you acquire companies, they're going to charge 5% of any investors that they bring in. If you bring in your investors into that pool or that rolling fund, they don't charge any fees on that. So you can imagine the amount of time and money. It's almost 90% cheaper to go through angel and a rolling fund than a traditional fund. 90%. Okay. The legal, the accounting, the fundraising, the time, the amount of work that's going through because they already have the structure in place. So all you have to do is build that kind of— once you get approved, all you have to do is build the actual fund, set it up, and then you go out and market it and find investors to subscribe directly through Angel. And they handle all the paperwork on the back end for you, which is a huge time commitment and a huge time save for anyone who's ever raised money for a fund before. So one thing you're probably thinking is like, as me as an investor, if I'm coming in for $5,000, why would I want, you know, 100 other investors in this, in this business or in this fund? And, you know, as the fund kind of grows, I get diluted every single time. But the beauty of it is your risk is dramatically reduced when you have 100 different investors. So you're only putting $5,000. Let's say you have 100 different investors. So you only have 1% of the overall pie. Yes. But that $5,000 of a bigger pie is a lot more valuable and a lot less risky for you versus coming in for $5,000 and you only have, let's say, 10 other investors and you own 10% of that company. Okay? So you have to look at it from a risk-reward perspective. You want to look at it from a bird's eye view so that even though your pie might be smaller, as the pie grows, the value of that pie grows as they— you acquire bigger and better and more companies into that portfolio. So you want the pie to actually grow because then you can actually go and deploy it. You get more capital back in, you get cash flow back in, and it continues to grow for everybody involved. So it's a win-win situation over time for all investors. If you guys haven't seen this already, go on Twitter. I highly suggest it. A lot of investors, a lot of GPs are actually raising their entire funds now directly on Twitter. They're just posting it and marketing them on Twitter, and they're raising millions of dollars literally in weeks. So the question is, should I be investing in a rolling fund? Absolutely. Okay, if you have— if you're considering a traditional fund as an LP or a rolling fund, I highly recommend a rolling fund because it's a lot cheaper for you. The fees are a lot lower and you're a lot more flexible for you to get in and out versus tying up your capital for so long. Now obviously, if you're comparing to public markets, this is a different, different, completely different strategy. This is mostly for small-cap or mid-market companies, which we're, you know, we're focused on at Horizon Capital. We buy small-cap investments, you know, and typically under $5 million. So this works really, really well. But if you're looking into publicly traded companies, that's a different ballgame, which I won't get into. And just a reminder, guys, this is not investment advice. I'm not a registered investor. Take this at your own discretion. I'm just here to teach you and show you guys the comparison between the 2 options. If you guys have raised a rolling fund in the past, I would love to hear your experience. What's been your thoughts? What's been your journey? What have you seen as the pros and cons of both Please comment below, make sure to subscribe to this video, and thank you guys for watching. Thank you.