Investing in private markets has long been reserved for the ultra-rich. However, thanks to tech startups, the process is becoming much more accessible to those who are not members of the wealthiest “one percent” of Americans.
Fundrise, a company that allows anyone to invest in real estate with a minimum investment of just $10, is making a quick entry into the venture capital market with the goal of raising a new $1 billion equity fund to invest in late-stage tech startups. , it was announced today. The new fund will be evergreen, meaning it will have an indefinite life, a structure that unlike the traditional VC model offers investors the ability to come and go as they please.
Ben Miller founded Fundrise in 2012 to give retail investors access to the private real estate market, and the company has since become one of the top 20 investors by size in that space, Miller, who serves as CEO, said in an interview with TechCrunch.
“When I started Fundrise, all the big real estate players told us we couldn’t do it, that it was ridiculous. [and we] it shouldn’t do that,” Miller said.
Miller’s strategy of using technology to lower the costs associated with investing in real estate appears to have paid off, despite the initial pushback. Fundrise manages more than $2.8 billion in real estate capital on behalf of 300,000 active investors on its platform today, and Miller says the company is growing fast enough that he expects it to climb into the top ten by asset size. private real estate within the next two years.
If all goes according to plan, the new growth equity fund will mirror Fundrise’s current real estate offering in its structure, allowing each investor to invest as little as $10 each. There are several other players also looking to help individuals gain VC exposure in their portfolios, including Sweater Ventures and Allocate, but Fundrise’s offering is more accessible as the former has a higher minimum investment at $500 and the latter is available only to accredited investors.
All investment decisions for the fund will go through approval by a three-person investment committee comprised of Miller, as well as Fundrise’s chief strategy officer and chief operating officer. The company will aim to raise its $1 billion target from customers already on its platform as well as new users, Miller added.
The fund will cost investors a flat management fee of 1.85%, significantly lower than the standard “2 and 20” fee structure that most traditional VCs use (a management fee of 2% plus a performance fee of 20 % on profits generated), said Miller.
The low cost of Fundrise’s offerings stems from the company’s use of technology to streamline and automate processes such as shareholder record keeping, according to Miller. Now that Fundrise has proven it can execute on the low-cost model for real estate investing by delivering strong returns (its real estate fund is up 5% this year while the S&P 500 is down over 20%), only time will tell if he can do the same for venture capital more broadly.
“The approach that we’re going to try to take is to basically not do what the traditional venture industry does, which is [to] hire a group of salespeople and analysts who actually spend their time doing sales and meetings and trying to get people to take their money. This is the old fashioned way of doing business. That’s how IBM did business 50 years ago, but that’s not how any SaaS company does business anymore,” Miller said.
As for Fundrise’s ability to land lucrative deals, Miller is convinced the fund’s launch is now an ideal time because many startups are in desperate need of capital as venture capital deals have slowed significantly amid fears of an economic downturn.
“I feel fortunate that failure in the tech market will create a better starting place for us. This is a once in a generation opportunity to get in… if we had tried to do this in 2021 we wouldn’t have broken even [to the venture ecosystem]”, Miller said.