Venture capital and tech investments can sometimes feel overwhelming for the average investor. Stories of huge profits from early investments in companies like Apple and Uber attract many, but venture capital often seems reserved for elite firms with access to private investments before they go public. Fundrise’s “Innovation Fund” aims to change this by offering a more investor-friendly model.
In a Fundrise podcast called “Onward,” CEO Ben Miller discussed how venture capital typically sources its funds from institutions such as endowments, pension funds, and family offices. Fundrise, the largest consumer-centric alternative asset manager in the U.S., has launched a new fund to change this dynamic.
Miller emphasized that their goal is to democratize venture investment. The Innovation Fund will allow private investors to invest in fast-growing private tech companies. Traditionally, emerging tech sectors like artificial intelligence and machine learning have been out of reach for individual investors, benefiting mainly venture capitalists and growth equity firms. However, the Innovation Fund plans to level the playing field by offering everyone the chance to invest in prominent private tech companies before they go public.
While the fund mainly focuses on late-stage, pre-IPO companies, it also plans to invest in early-stage startups and hold some public stocks. Current assets include major names like Uber and lesser-known private software firms like ServiceTitan, Inspectify, and Vanta.
This initiative addresses a shift in how tech companies operate. Unlike companies like Amazon and Google, which went public relatively quickly, today’s fast-growing tech firms tend to stay private much longer—on average, about a decade. This extended private period means that individual investors, who are generally limited to public markets, miss out on potential high returns from emerging industry leaders in areas like AI, data infrastructure, and fintech.
Miller describes the fund’s long-term strategy as ‘evergreen,’ focusing on consistent growth rather than short-term risks typically taken by large venture capital firms. He believes in steady, long-term returns rather than short-term high returns, highlighting the benefits of compounding.
Unlike many venture funds, the Innovation Fund takes a ‘product-first’ approach, prioritizing pre-IPO companies with strong growth potential based on their tech and business models. Miller critiqued the current venture capital trend of momentum investing, where large firms compete to invest in already successful companies, often inflating valuations and creating potential bubbles. The Fundrise strategy is different, focusing on technology development to identify and connect with promising tech companies.
Additionally, the Innovation Fund avoids the traditional “2 and 20” fee structure of venture capital firms, which usually charge a 2% annual asset management fee plus 20% of investor profits. Miller argues that their fund, which does not take a 20% share of profits, aligns more closely with the interests of individual investors. This approach minimizes skewed incentives and aligns with their strategy of serving long-term objectives.
By having 350,000 investors and 1.6 million users, Fundrise offers a distinctly different model compared to venture funds that might have just 20 institutional investors, making venture capital more accessible to everyday investors.