If you want to invest in venture capital, you now can by investing in the Fundrise Innovation Fund. It has democratized access to venture investing with only a $10 investment minimum for all investors. In comparison, traditional venture capital funds are invite only and have $100,000-$250,000 minimums.
My first venture capital investment was in 2007. I invested $70,000 in my college classmate's gin company called Bulldog Gin, which ended up selling to Campari in 2017. Looking back, investing $70,000 in a single private company at age 30 was irresponsible!
I knew nothing about the spirits market. All I knew was the founder, his experience in investment banking, and his drive to succeed. In addition, $70,000 as a percentage of my income and my investments was way too high from a risk management perspective.
I'm thankful to have earned a return on my investment. However, since then, I've learned to be much more strategic and responsible with my private investment capital.
Based on my research and experience, I'm not a proponent of angel investing (investing in individual private companies) because of adverse selection. All the best deals go to venture capital funds with stronger connections and expertise. Hence, my focus is mainly on investing in funds.
Fundrise is a long-time sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise funds.
Why I Invest In Venture Capital Funds
I've written in the past why I invest about 10% of my investable assets in private funds despite the fees.
One of the reasons is to diversify my investments away from public equities, public bonds, and real estate. Public equities are especially volatile, which can feel uncomfortable once you accumulate a certain portfolio value.
Another reason why I invest in venture capital funds is to gain access to companies staying private for longer. Instead of buying a company after it goes public, I'd like to invest in more private companies earlier to try and capture their valuation growth.
In my perennial search to find the next Google pre-IPO, I'm willing to continue to allocate a minority of my investable assets to private funds and pay a fee.
Unfortunately, with investment minimums between $100,000 – $250,000, not everybody has the capital to invest in private venture capital funds – until now.
Making Venture Capital Investing Accessible To All With Fundrise
In 2022, Fundrise launched its Innovation Fund (my review). Two years later, the Innovation Fund has built a portfolio of promising investments. Some of these investments include Vanta, Databricks, Anthropic, Canvas, and many more high quality private growth companies.
With only a $10 investment minimum, Fundrise provides access everyone in private growth companies. In addition to a low investment minimum, Fundrise doesn't charge a percentage of profits, only 1.85% of management. Traditional venture capital funds charge 2% of management and 20% of profits. Some charge 3% and 35%.
The Innovation Fund invests in five main areas:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Fundrise is a long-time sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise funds.
The Databricks Investment And AI
What really caught my attention was when the Innovation Fund invested $25 million in Databricks, one of the most innovative software, data, and AI companies today. The company grew out of the AMPLab project at my business school alma mater, UC Berkeley.
Today Databricks is used by over 10,000 organizations worldwide. Databricks raised about $500 million from investors such as Andreessen Horowitz, Baillie Gifford, ClearBridge Investments, and NVIDIA.
Part of my goal over the next five years is to build out my investment exposure to artificial intelligence. AI is clearly a positive long-term investment trend. I also fear our children's jobs will be crowded out by artificial intelligence, which is why I'm trying to hedge by investing in AI.
Here are some of Databricks' financial highlights from 2023:
- Crossed $1.5B revenue run rate at over 50% revenue year-over-year growth with the second quarter representing the strongest quarterly incremental revenue growth in Databricks’ history
- Ended the quarter with more than 10,000 global customers, including >300 customers consuming at $1M+ annual revenue run-rate
- Achieved record Non-GAAP subscription gross margins of 85%
- Closed acquisition of MosaicML, a leading generative AI platform
- Delivered 20 product and feature releases at the sold-out Data and AI Summit in June with over 30,000 global attendees
In 2024, Databricks has grown even more and is likely headed toward an IPO by 2025 or 2026 at the latest.
Praise About Databricks
“Enterprise data is a goldmine for generative AI,” said Jensen Huang, founder and CEO of NVIDIA. “Databricks is doing incredible work with NVIDIA technology to accelerate data processing and generative AI models.”
“Data and AI have rapidly become the centerpiece of many business strategies. Databricks has not only pioneered the Lakehouse category with a world-class team and product, but it is now also at the forefront of Generative AI for the enterprise. We’re proud to extend our investment at such a pivotal time for the company, its customers, and the data and AI industry.” – Alan Tu, Lead Private Equity Analyst, T. Rowe Price Associates, Inc.
If Jensen Huang from NVIDIA is investing in Databricks, I want to as well. The guy is worth $80+ billion and clearly sees the future. Investing in both NVIDIA plus private growth companies in AI is my strategy. NVDIA’s latest results blew past estimates and now is seeing a different trajectory of growth.
Living in San Francisco, I can't help but hear about AI everywhere. I also don't want my kids asking me in 20 years why I didn't invest in nascent AI companies today. Even if I fail to invest in an AI winner 20 years from now, at least I can say that I tried.
I've had this same fear regarding real estate because I've questioned why my parents and grandparents didn’t buy more real estate when they were younger.
Podcast On How Venture Capital Works
The Innovation Fund is now open to all investors. I talked to Ben Miller, CEO and Co-Founder of Fundrise, about the details of his fund, how an evergreen venture capital fund works, and future investments his team is excited about.
Podcast Interview Topics Include:
- Why Fundrise got into private company investing
- How the investment process works to win deals and gain access
- The value-add Fundrise can provide with its investments
- Valuations of private growth companies today versus in 2021 and 2022
- The power law and how the top investments account for most of the gains
- Its Databricks investment, which currently accounts for 25% of the fund (the limit)
- How the returns work for an open-ended venture capital fund
- How Fundrise structured its fund to enable investors to get liquidity every quarter if desired
- The portfolio structure and how many investments the fund wants to make in the future
To learn more about the Fundrise Innovation Fund, click here. You can see the investments before deciding to invest and how much. With traditional venture capital funds, you must first commit capital and then hope the general partners make good investments.
Fundrise is a long-time sponsor of Financial Samurai and Financial Samurai is a six-figure investor in Fundrise funds.
Sam, This write up regarding private equity might interest you.
https://www.theatlantic.com/ideas/archive/2023/10/private-equity-publicly-traded-companies/675788/
Fascinating and true!
As a private company owner and investor myself, I see the benefits.
Do you view Fundrise as a private real estate investing platform, an asset manager, or both? The move into Private Credit makes sense to me, only because higher base rates make this asset class VERY attractive relative to PE and it looks like its solely Private Real Estate Debt, which is more in their wheelhouse. Venture Capital though… are you getting access for the sake of access to the asset class, or do you really believe in their underwriting… because AI now harkens back to some dot-com stocks (clearly not Databricks but there is a lot of capital chasing AI companies now, so it something to be careful around).
I think its important to remind people that interval fund vehicles that Fundrise uses are quarterly redemptive, and are meant to be used in a long-term buy and hold strategic allocation, not tactical. The rich are beneficiaries of Alts products and the accredited investor rules because they have the liquidity and risk capacity (not tolerance) to do it – not ONLY because rich people write the rules we all live by.
I’m all for investing for the little guy, as a little guy myself, and the long-term returns of VC are attractive, but you have to be realistic about how much you can afford the lock-up and that the fees are worth the credit/business risk and the liquidity. Volatility isn’t the most important barometer for risk in illiquid assets since they don’t mark-to-market and you cant withdrawal whenever you want anyway… you have to deeply consider the manager’s underwriting and the possibility of capital loss.
I’m not sure what to make of this article. I like the intro to venture capital and the typical Fundrise plug, but it feels a little more “paid for by” than usual with the Databricks example.
I view Fundrise as both. I’ve spent years understanding their platform and their investment philosophy before investing with them. My biggest attraction to Fundrise was how we were aligned in investing in the heartland of America back in 2016. I came out with my thesis and I discovered they launched a Heartland eREIT with a similar thesis.
I think it’s wise of you to be skeptical of everything. I had never heard of Databricks until earlier this year, and then again when I talked to Ben about the Innovation Fund’s investment in Databricks. So I searched online to listen to videos from the founders, their latest press release where I got a lot of the info from.
What I found about Databricks is promising. I even applied to one of their jobs online.
One of my financial goals over the next 3 years is to build $500,000 worth of exposure to various AI companies. There’s a lot of hype now, which can be dangerous. Hence, my goal is to pick and choose the best funds who will invest over the next 3 years.
The beauty of investing is that we can do what we want with our money. We will also know whether we are right or wrong years from now. Always do your due diligence before making any investment.
Part of my due diligence is actually getting to speak 1X1 with founders about their companies.
I’m sure a person doesn’t get to where you are (intentionally) without having done their due diligence. Seeking that level of access and insight (direct from founders’ mouths) just sort of proves the point that you’re still doing it, and that is commendable. As far as Fundrise goes, I have not done any due diligence – so I’m not here to agree or disagree on if it could turn out a good or bad call. I have not even achieved a level of capital to take the leap into expensive illiquid assets, personally. But when someone says “for only $10s, you too can invest in VC”, the hairs on my neck stood up for both good and bad reasons. haha
As always, thanks for the content – timely and interesting. You stick your neck out with personal anecdotes, and you engage with readers. Its why I keep coming back.
Opinion on wefundeR?
Is that to early for you?
We use Cathy Wood’s ARK Venture Fund (via Titan) for the VC piece of our Alternative portfolio. At 2.9% the fee is high, but access to 44 companies, many of which are private (to include 8% in Databricks:), is worthwhile to me. The 1099-Div can easily be captured tax-free via a Roth SDIRA. One more option for small investors to get into this world with professional managers making the investment decisions.
The fact that Fundrise is investing in these fundraising rounds alongside the major VC funds speaks volumes.
It’s ingenious to me what they’ve done with making VC accessible to anyone. Only a $10 minimum to get exposure – come on that’s incredible! I would feel very anxious if I had to fork over the traditional 200-250k to get exposure to VC. Plus, I have no connections to even get a hook up. But having the option to invest in the low thousands so easily, or even way less, is sweet. Obviously the upside is minimal with small dollar amounts compared to putting in over six-figures. But I really like how they’ve made diversifying into VC so easy for everyday Joe’s like me. Rock on.
I invested $50,000 in a BDC about 7 years ago. It pays a 7 percent yield yearly which I reinvest. It’s currently worth 52k and I’ve paid close to 5k in taxes on the dividend. I don’t have the connections Samurai has. I’ll stick with index funds.
What is a BDC?
This is one of the main points about the Fundrise Innovation fund. You don’t need connections to invest in quality, private growth companies anymore.
You just need $10. Getting into Databricks, for example, is pretty huge. A lot of people want to invest, but few people could, until now.
Please research BDCs (listed or private)
Private credit is the way
Thanks
Any interest in writing a guest post about it?
I’d consider
Hi Sam,
I understand your reservations about investing in individual private companies. That said, the QSBS does provide an appealingly low tax rate (0%!). Can you please comment on when this makes it worthwhile?
Good point. I should write an article about it. If it works out, it works out great. But most individual, Angel Investments do not work out for the tax benefit is mute.