Investing in private markets has long been the preserve of the ultra-wealthy. However, thanks to tech startups, the process is becoming much more accessible to those who aren’t part of the wealthiest “one percent” of Americans.
Fundraising, a company that lets anyone invest in real estate with a minimum investment of just $10, is making a splash in the venture capital market with the goal of raising a new $1 billion growth equity fund to invest in late-stage tech startups. announced that today. The new fund will be evergreen, meaning it will have an indefinite life, a structure that, unlike the traditional VC model, allows investors 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 since then the company has become one of the top 20 CEO investors in the space, Miller told TechCrunch in an interview.
“When I started Fundrise, all the big players in real estate told us we couldn’t do it, that it was ridiculous. [and we] shouldn’t do that,” Miller said.
Miller’s strategy of using technology to lower the costs associated with real estate investing appears to have paid off, despite initial pushback. Fundrise manages more than $2.8 billion in real estate equity 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 grow to the size of private real estate first. in the top ten. 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 any investor to invest $10 each. There are several other players also looking to help individuals get VC exposure in their portfolios, including Sweater Ventures and Allocatebut Fundrise’s offering is more widely available as the former has a higher investment minimum of $500 and the latter is only available to accredited investors.
All of the fund’s investment decisions will be approved by a three-person investment committee consisting of Miller as well as Fundrise’s chief strategy officer and chief operating officer. Miller added that the company will aim to raise its $1 billion target from customers already on its platform as well as new users.
The fund will cost investors an equivalent management fee of 1.85%, significantly lower than the standard “2 and 20” fee structure used by traditional VCs (a 2% management fee plus a 20% performance fee on profits generated), Miller said.
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 operate on a low-cost real estate investment model while delivering big returns (its real estate fund is up 5% this year, while the S&P 500 is down more than 20%) , only time will tell if it is. can do the same for venture capital more broadly.
“The approach we’re going to try to take is basically to not do what the traditional venture industry does, which is: [to] hire a group of salespeople and analysts who really spend their time in sales and meetings and trying to convince people to take their money. It’s 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 believes now is an ideal time to launch the fund, as many startups need capital as venture capital deals have slowed significantly due to fears of an economic downturn.
“I feel happy that failure in the tech market will create a better starting place for us. This is a once-in-a-generation opportunity… if we tried to do it in 2021, we wouldn’t be able to break in. [to the venture ecosystem]Miller said.