Fundrise Innovation Fund Review: Disrupting Venture Capital

Fundrise launched its Innovation Fund, a venture capital product at the end of 2022, investing in mid-to-late-stage private tech companies. More broadly, the product invests in companies within specific sectors that have strong macro tailwinds, such as machine learning and artificial intelligence. The goal is to invest in long-term trends that expand over the next several decades.

Since 2010, Fundrise has focused on disrupting the commercial real estate market. Now they see an opportunity to disrupt the venture capital market. With over 350,000 investors on the Fundrise platform and over $3.2 billion in assets under management, it’s easy to see how Fundrise can grow its venture product with relative ease.

At first, I was surprised when I first heard Fundrise was launching a venture capital product. After all, Fundrise’s expertise lies in real estate, especially investing in Sunbelt single-family and multi-family properties.

But after listening to Ben Miller describe his vision and touching base with the Fundrise team, I’m more enthusiastic about where the Fundrise venture capital product will go. After all, Fundrise is starting this new tech product initiative from the ground up.

Ultimately, I ended up investing $143,000 in Fundrise Venture after seeing their portfolio of holdings. I’m excited about invested in private AI companies because I’m confident it will thoroughly disrupt the labor market and improve productivity.

My Private Equity And Venture Capital Investing Background

Before providing a review of Fundrise’s venture capital product initiative, let me share with you my private equity and venture capital investing background.

I’ve been investing in private companies and in venture capital funds since 2001. I do so because I like to diversify my investments given I had worked in investment banking for 13 years and own real estate as my main source of passive income. Further, I like to invest over long durations. The longer the better. Many of these private funds have 5-10-year investing cycles.

As someone who has lived in San Francisco since 2001, I’ve developed a tremendous desire to invest in technology and innovation. Tech startups are a part of our culture here in the Bay Area. I figured, if I couldn’t get a job at a private tech company, I might as well try to invest in those private tech companies.

Finally, I’m an entrepreneur with Financial Samurai. I started this site in July 2009 and I consider it a lifestyle business. There’s only my wife and me running operations so we can stay asset light and as free as possible.

Despite not having a team to manage (hooray), I have an intimate understanding of marketing, finance, customer acquisition, business development, and so forth. In business school, I’d be your favorite adjunct professor!

However, I choose not to scale up because I want our business to fit our lifestyle, not the other way around. We have enough money to be happy.

Fundrise Venture Capital Product Review

Now that I’ve gotten my private investing background out of the way, let me share with you my thoughts on the Fundrise venture capital product.

This will be the most thorough Fundrise venture capital product review you will read and listen to on the internet because I speak directly with Ben Miller, the CEO and co-founder of Fundrise.

Please note Fundrise is a long-time sponsor of FS and I am a six-figure investor in Fundrise funds.

Great Timing To Launch A Private Tech Fund

Private and public technology valuations collapsed in 2022. Gains of the past two-to-five years have been wiped away from many technology companies.

If you invested in venture capital in 2021, you were investing at all-time highs. Funds that raised capital at that time were forced to invest due to their target mandates. As a result, many private companies could ask for the moon and get it. In addition, many venture funds couldn’t gain access to the best deals.

Today, the landscape has changed. Great companies are more willing to talk to new investors. The decline in valuations has removed the frenzy. There is a lot more humility today than there was in prior years.

Hence, the timing of Fundrise’s venture capital product launch at the end of 2022 was good and it’s now investing in great companies at better prices going forward. As Ben (CEO) said in the podcast, “Better to invest in the best companies at a good price than invest in good companies at the best price.“

In 2024, you are seeing tech companies rebound with a vengeance, especially private AI companies. However, there are still plenty of opportunities to invest in private growth companies at lower prices.

Better Value Proposition As A Builder and Entrepreneur

In the beginning, the greatest venture capital investors were builders. People like Eugene Kleiner built Fairchild Semiconductor in 1957 to great success. With technological and business insights, Eugene went on to invest in companies like Intel in 1968 and a whole host of other great companies.

Today, there are over 2,000 venture capital funds made up of 3-5 partners, most of whom have no entrepreneurship experience. Instead, they are professional investors who worked in investment banking, went to business school, and compete to effectively deploy capital.

Ben’s argument, which I 100% agree with, is that investors who are also entrepreneurs have an edge over investors who’ve never built something of their own. To me, it seems kind of silly that a venture capitalist who has only read case studies is giving advice to entrepreneurs.

It’s kind of like writing a personal finance book without a finance background. It’s certainly possible, as many authors have succeeded in doing so. However, it may not be most effective in helping the reader since the author can’t go deep into subject matters.

Fundrise can utilize its 350,000+ investors and extensive capital to help private companies grow.

Fundrise’s Large Product Engineering Department Is A Competitive Advantage

You may be surprised to learn that Fundrise has roughly 100 engineers in its product engineering department. I know I was. Although Fundrise is a vertically integrated real estate investing platform, it is also a technology company.

When you have 100 product engineers, your company develops a deep understanding of technology. These technologies include cloud data infrastructure, analytics, digital marketing, cyber security, payment processing, data storage, and design.

By working with multiple technology companies to help run Fundrise, it also gets to deeply understand the inner workings of technology companies as a consumer and operator. This is a big competitive advantage compared to venture capital firms, all of whom have ZERO product engineers.

Be An Expert User Of Your Product To Invest Better

I remember driving for Uber back in 2015 because I was fascinated with this new way of making money. I figured some Financial Samurai readers would also be interested, so I gave over 500 rides.

By going deep, I was able to optimize how to make the most money per hour and share my strategies. Further, I could share insightful stories about the gig economy and everyday people.

People who worked at Uber corporate, on the other hand, refused to drive or were not allowed to drive. It was as if driving was beneath them. But I thought this was a huge policy decision error. After all, how can you really know about your own product if you don’t deliver it yourself? Uber’s valuation, unfortunately, has gone nowhere since 2015.

If you better understand the product you are investing in, you will ultimately make better choices. You will understand the product’s various pain points. Further, you’ll also more easily recognize when there are positive strategic changes.

Fundrise plans to leverage its expertise in real estate and financial technology to find the most promising deals.

Related: Fundrise Pro Review

Fundrise Venture Capital Access Advantage

Whenever I mention I invest in a venture capital fund like the Kleiner Perkins 20 fund, most recently, readers ask me how they too can get access. Unfortunately, gaining access to some venture capital funds is difficult if you don’t work at the firm or know someone who does.

I gained access to Kleiner Perkins funds because my good friend went to business school with the fund manager. I also ended up going on an hour-hike with the Kleiner lead manager down in Joshua Tree. Therefore, he let me invest $140,000. I say “let” because the demand for his fund was 3X its targeted fundraise size and he didn’t want to upsize the fund.

With Fundrise, anybody can invest in the fund. You don’t need connections. You just need internet access and a minimum of $10. The first investors to gain access to the venture capital product were the Fundrise IPO investors. As investors of real estate on the Fundrise platform and shareholders of Fundrise, this makes sense.

Now the Fundrise is open to everyone who is interested in investing in private growth companies. The investment minimum is $10 versus $100,000 – $250,000+ at other venture capital funds. In addition, investors can see what the venture capital product is investing in first before committing capital. Investors will get a 1099-DIV tax form statement instead of a more complicated K-1 statement.

Fundrise’s Venture Product Has Lower Fees

The other knock on venture capital funds is the fee structure. The typical venture capital fund charges a 2% management fee and 20% of the profits (carry). In the past, when venture capitalists were less common and were cut from the entrepreneurial cloth, this fee made more sense.

However, with over 2,000 venture capital funds run by investors, not operators, there’s a lot more pushback on the 2 and 20 fee structure. The fee structure for private funds is the biggest downside. I’ve been spoiled by the minimal fees of index funds and index ETFs. We all have.

But given I like to allocate 10% of my capital toward private funds, I begrudgingly pay the fee. My hope is the fund will far outperform their respective return hurdles and justify the charging of such a high percentage of profits.

Fundrise’s venture product has no carry fee. Instead, it charges a flat fee of 1.85%. If the Fundrise is able to demonstrate its ability to invest in great companies over the long term, then not having to pay the 20% of profits will be a nice benefit for its investors.

When there is no carry fee, it can no longer be the driver of incentives for venture funds to deploy capital at all costs. This helps save investors from the fund manager chasing hot deals with a time limit to deploy funds.

Fundrise’s Venture Capital Product Is An Evergreen Fund

Fundrise’s venture product is an evergreen fund (permanent fund). In other words, it plans to continuously raise capital, invest in private tech companies, and distribute capital over time.

This is unlike the traditional venture capital fund that raises capital, invests over a two-to-three-year period, and returns capital after a 5-10-year period. This cycle causes venture capital funds to constantly raise new funds (vintages).

On my podcast, Ben mentioned an interesting example of why it is better to have a permanent fund.

He said Sequoia, arguably the greatest venture capital firm of all time, sold its shares in Apple after the IPO and made 6X their money. Part of the reason why was Sequoia promised to return capital to its limited partners within a window of time. If Sequoia had held onto its initial investment in Apple, it would have made a 24,000X return.

I’m excited about the growth of the Fundrise venture capital product over time. As a CEO, Ben is thinking strategically about how he can add more value to investors while also growing Fundrise’s own value.

With over 500,000 existing Fundrise investors who have made solid returns over the past 10+ years, surely some of them will invest in the venture capital product as well.

Fundrise Venture Capital Product Investment Focus

For those interesting in investing in the venture product, here are the five areas the fund plans to invest in:

 Artificial Intelligence & Machine Learning

 Modern Data Infrastructure

 Development Operations (DevOps)

 Financial Technology (FinTech)

 Real Estate & Property Technology (PropTech)

In 20 years I don’t want my children asking me why I didn’t invest in artificial intelligence or work in artificial intelligence near the beginning! Do you? I personally will allocate $500,000 to various private funds that invest in AI.

Fundrise Venture Product’s Investments

To see the Fundrise venture capital product’s holdings, simply click here. As of this post, the venture product has made 21 investments, most of which are in private growth companies. Meanwhile, to provide liquidity to investors once a quarter, the venture product has also invested in public companies.

The holdings change over time, so feel free to keep checking back.

If you want to invest in venture capital, start small and gradually work your way up. Investing in a VC fund is better than investing in individual private companies. Study the companies the fund has invested in to see whether there’s a place in your portfolio. Remember, venture funds likely wont return capital for 5+ years. Hence, you must allocate capital accordingly.

Conversation With Ben Miller About Venture Capital

Finally, I also like Ben’s skepticism and cautiousness when evaluating investments and making business decisions. As someone who went through the 2000 dot bomb period and started building Fundrise soon after the 2008-2009 global financial crisis, he is fully aware of the risks. He is also aware of opportunities during downturns as well.

In fact, Ben’s career time frame is quite similar to mine. I started my career in 1999 and experienced the euphoria and collapse of tech. Then I started Financial Samurai in 2009, at the bottom of the global financial crisis, while Ben started Fundrise in 2010.

As an investor, I appreciate a cautious CEO and investor rather than one who is perennially optimistic, like I am. I need that balance in order to make more risk-appropriate investments. You can hear more about Ben’s pragmatism and caution surrounding investing in my hour-long interview with him about Fundrise’s venture capital product.

You can learn more about Fundrise’s venture product by clicking here. The investment minimum is only $10, so it’s easy to dollar-cost average into the fund.

For investors, the competitive advantage of investing in Fundrise is that you can see what is in the portfolio before making an investment and how much. Whereas with a traditional venture capital fund, you must first commit capital before the general partners make any investment.

Fundrise is a sponsor of Financial Samurai and Financial Samurai has invested over $280,000 in Fundrise overall.