FS_Ben_Miller_Innovation_Fund

00:00:00.000 | Hello, everybody, it's Sam from the Financial Samurai podcast.

00:00:03.440 | And in this episode, I have a special guest with me,

00:00:06.240 | Ben Miller, the co-founder and CEO of Fundrise,

00:00:10.280 | to specifically talk about his Fundrise Innovation Fund.

00:00:14.200 | So welcome to the show again, Ben.

00:00:15.760 | Sam, good to see you.

00:00:16.920 | Yeah, good seeing you again.

00:00:18.520 | So tell us, listeners, how the Fundrise Innovation Fund got

00:00:23.200 | started and why you decided to start a Fundrise Innovation

00:00:27.280 | Fund, given your focus has been on property

00:00:30.440 | for the past 11-plus years?

00:00:32.720 | Yeah, that was the most frequent question

00:00:34.400 | we got from investors.

00:00:36.000 | So when we built Fundrise, we learned a lot about technology.

00:00:40.680 | For the last 11-plus years, we built

00:00:43.920 | most of the major components that exist in the technology

00:00:47.360 | business.

00:00:47.860 | So we have-- I mean, we sit on top of the cloud,

00:00:50.360 | so we didn't build the hardware systems ourselves.

00:00:53.840 | But we-- databases, APIs, transaction engine,

00:00:58.360 | payment processing, data analytics, data engineering,

00:01:01.960 | product, product development, iOS apps, Android apps.

00:01:05.560 | We have 2 million users, millions, billions of dollars.

00:01:08.680 | So we know a decent amount about technology at this point.

00:01:12.240 | And we also know a lot about the business lessons

00:01:16.560 | of building a company.

00:01:18.120 | Our digital marketing, we spent tens of millions

00:01:20.280 | of dollars in digital marketing.

00:01:21.660 | And that's a very important part of go-to-markets.

00:01:24.840 | I have 20-some years in real estate.

00:01:26.720 | I know a decent amount about real estate.

00:01:28.420 | But at some point, we started having observations

00:01:32.200 | about what was wrong with venture capital

00:01:34.440 | and why it's basically impossible to get.

00:01:38.680 | You're essentially not able to invest in venture capital

00:01:41.920 | if you're a normal person.

00:01:44.120 | And that's like-- our mission was

00:01:47.080 | to democratize real estate, because you

00:01:48.840 | couldn't invest in real estate when we started,

00:01:51.040 | unless you wanted to buy a house.

00:01:53.360 | And so our mission was to democratize

00:01:57.400 | investing into essentially great investments

00:02:00.720 | that you couldn't normally get.

00:02:02.520 | And we really have done that with real estate.

00:02:04.640 | And we are a scaled business.

00:02:06.120 | We have 20,000 residential units and millions

00:02:09.600 | of square feet of industrial.

00:02:10.840 | And we are a big lender in the space.

00:02:13.040 | And we have hundreds of thousands of investors.

00:02:15.320 | And we raise a lot of money from venture funds.

00:02:18.840 | And I know a decent amount about it.

00:02:21.680 | And we just saw it as both a problem and an opportunity.

00:02:25.240 | Why shouldn't people be able to do this?

00:02:27.920 | That doesn't seem right to me.

00:02:29.960 | It seems unjust.

00:02:32.460 | And we have expertise in it.

00:02:34.920 | And so it became ultimately the natural next step

00:02:40.400 | for the business.

00:02:42.000 | OK.

00:02:42.960 | And timing-wise, it seems pretty auspicious,

00:02:46.720 | given there was a downturn in 2022,

00:02:49.600 | tremendous valuation bubbles bursting, it seems like.

00:02:54.040 | What are you seeing in terms of valuations from 2022 to now?

00:02:58.760 | Yeah.

00:02:59.260 | I mean, obviously, being lucky is so critical

00:03:02.460 | to being successful.

00:03:04.120 | And we were lucky.

00:03:05.680 | And also, we went about trying to figure out

00:03:08.080 | how to do this, which is democratizing investing

00:03:10.840 | into venture capital.

00:03:12.320 | And we went to the SEC.

00:03:14.920 | We've worked with the SEC on many other kinds of innovations.

00:03:17.440 | And we figured out a way to do that.

00:03:18.940 | And that took a couple of years.

00:03:20.400 | We've been really trying to figure out

00:03:21.980 | how to do this for a while.

00:03:23.320 | And we actually sort of got the green light from the SEC

00:03:26.240 | in 2020, before the pandemic.

00:03:29.520 | And then the pandemic hit.

00:03:31.440 | And for a lot of reasons, but one of the reasons is,

00:03:33.760 | you saw the tech valuations went crazy.

00:03:36.800 | And so we actually didn't launch it,

00:03:40.360 | because we thought that it was maybe not the right moment

00:03:43.800 | for us to do that.

00:03:45.240 | We focused on the real estate.

00:03:46.560 | We focused on execution of real estate,

00:03:47.960 | because there was a lot happening in the world.

00:03:49.920 | And then we turned our attention back to venture in 2022.

00:03:54.000 | And what had happened is that it turned out

00:03:57.080 | 2020, 2021 was a bubble, tech bubble in particular.

00:04:01.560 | And the tech valuations were anywhere from 100 to 500 times

00:04:07.680 | revenue.

00:04:09.640 | And in the public markets, they got as high

00:04:12.760 | as 50 to 70 times revenue.

00:04:15.920 | So everything had gotten inflated

00:04:18.280 | by the Federal Reserve's sort of stimulus and fiscal stimulus.

00:04:23.440 | And so when the tech market collapsed,

00:04:27.320 | we said, this is the time to go.

00:04:30.800 | And so we launched the fund about a year ago.

00:04:33.800 | We started raising capital into it.

00:04:35.960 | But then we were very slow to deploy it.

00:04:38.960 | And we can talk about essentially

00:04:41.480 | how the fund works, but the one key part--

00:04:44.080 | and it's kind of a constant refrain with me--

00:04:46.760 | is we really try to have discipline.

00:04:49.320 | We try.

00:04:50.360 | And so we were slow to deploy, which

00:04:52.080 | is very unusual in the investment business

00:04:54.000 | to have capital and not deploy it.

00:04:57.120 | And we didn't charge fees on the undeployed capital, actually,

00:05:00.240 | because it's a different challenge investing

00:05:03.760 | in the private markets than public markets.

00:05:05.960 | It's not enough to have money.

00:05:07.640 | If you have money, you say, oh, I want to buy Nvidia, Google.

00:05:10.560 | You can do that.

00:05:11.560 | But if you want to buy the best tech companies

00:05:13.520 | in the private markets, you can't.

00:05:15.320 | You have to get access.

00:05:17.520 | And that's what was taking so long,

00:05:19.840 | was just getting access to the companies

00:05:21.960 | that we thought we wanted to own.

00:05:24.040 | And that's what essentially has been the recent breakthrough.

00:05:26.760 | But we can get to that later.

00:05:27.960 | Got it.

00:05:28.560 | So it does seem like the timing to invest

00:05:30.800 | in growth private companies is better, definitely better,

00:05:34.640 | than in 2021 and in early 2022.

00:05:39.800 | So in terms of access, because I hear you,

00:05:42.760 | and I think a lot of people realize that getting access,

00:05:45.320 | investment access to these select private companies

00:05:48.440 | is very hard for the average person to do.

00:05:51.080 | So how was Fundrise able to, for example, invest alongside tier

00:05:57.000 | one venture capital firms like Y Combinator for a company

00:06:01.520 | like Vanta, for example, where it looks like Fundrise

00:06:04.840 | Invasion Fund invested $5 million at a valuation

00:06:07.800 | at last funding of $1.65 billion?

00:06:10.360 | How do you gain access to these deals?

00:06:13.640 | Well, so it's changed over time.

00:06:16.120 | And there's different market reasons.

00:06:17.960 | Usually, it's a combination of your network and the market.

00:06:22.840 | And the market is much more important

00:06:25.720 | than everybody says it is.

00:06:26.800 | Everybody talks about adding alpha and their capabilities.

00:06:29.560 | But everybody's riding the wave of the macro.

00:06:34.560 | And the macro-- that's what I learned in 2008

00:06:37.320 | when Lehman Brothers went bankrupt--

00:06:39.560 | is that the macro is way, way more important

00:06:42.000 | than everybody pretends.

00:06:44.120 | And it's a big part of why people are successful or not

00:06:46.520 | successful.

00:06:47.760 | So when the market collapsed in tech, a lot of money

00:06:51.920 | left this industry.

00:06:53.640 | I mean, the amount of venture money fell by a huge amount.

00:06:57.360 | I don't know if it's 50%, 75%, 80%.

00:07:01.040 | Depends on the stage of the company.

00:07:03.840 | But really, the lack of capital created an opportunity

00:07:07.120 | for a new capital source to come in.

00:07:09.400 | And so companies were--

00:07:11.880 | especially good executives-- were

00:07:14.040 | worried about having enough money,

00:07:16.440 | wanted to basically take more money than they would have

00:07:19.040 | maybe otherwise.

00:07:20.200 | A lot of the mid- to late-stage investors

00:07:23.080 | had disappeared from the market.

00:07:26.080 | And so we were lucky to be able to fill

00:07:31.920 | a vacuum that had happened as a result of the collapse

00:07:35.840 | in the market.

00:07:37.320 | Interesting.

00:07:38.240 | And would you say that the more you

00:07:40.520 | invest in certain companies that turn out to be successful,

00:07:43.800 | have momentum, the easier it is to gain access

00:07:47.160 | to other companies because it demonstrates a track record?

00:07:50.840 | Yeah.

00:07:51.440 | I mean, there's a few-- it's so funny.

00:07:53.720 | If you study venture, if you work in venture,

00:07:56.400 | most of the storied venture funds

00:07:58.480 | that became so successful, they started

00:08:02.160 | by having one or two great investments that

00:08:05.320 | made them famous.

00:08:06.960 | And how much of those investments were luck

00:08:09.360 | and how much of those investments were skill--

00:08:12.040 | definitely not all skill, definitely also luck.

00:08:15.000 | And so it's like self-fulfilling prophecy.

00:08:17.680 | Once you have one good investment, oh, I invested.

00:08:20.120 | I funded Google.

00:08:21.080 | I funded Microsoft.

00:08:23.640 | It made you basically a venture fund

00:08:26.640 | that got the next companies.

00:08:28.920 | And so that's definitely how it works.

00:08:30.760 | And the more we have world-class companies,

00:08:33.200 | the more world-class companies will want us or accept us.

00:08:38.400 | So that's basically the broader frame.

00:08:42.240 | And then the second thing happened

00:08:44.360 | that happened really recently that we

00:08:46.280 | haven't talked about yet.

00:08:47.320 | So the first thing was we filled a vacuum.

00:08:49.080 | We started investing.

00:08:50.480 | But it looks like we're investing slowly.

00:08:52.720 | But the market-- we found a new way

00:08:55.480 | to invest that really was exceptional.

00:08:59.880 | And what is that new way to invest?

00:09:02.280 | So what happened-- let me pan out for a minute.

00:09:08.520 | Companies used to go public after three or four or five

00:09:12.080 | years.

00:09:12.960 | And they would go public way earlier.

00:09:15.200 | And so Amazon went public after three years.

00:09:18.040 | And Microsoft went public.

00:09:19.520 | And so they were actually like, you come in.

00:09:21.360 | You'd be a venture investor.

00:09:22.720 | You'd invest in the first one or two rounds.

00:09:25.280 | And they go public.

00:09:26.480 | And then since 2008, companies have stayed private a lot

00:09:30.160 | longer.

00:09:31.200 | And that money has been coming from private markets.

00:09:33.960 | And so instead of just having a series A and a series B,

00:09:38.160 | companies will have A, B, C, D, E. I mean,

00:09:40.200 | they'll just keep-- they'll stay private for 10 years, 12 years.

00:09:44.120 | And so then at a macro level, the downstream consequences

00:09:47.400 | of that are like normal investors

00:09:49.480 | didn't get to participate in Uber going from zero

00:09:53.520 | to $50 billion or Facebook going from zero to $50 billion.

00:09:59.600 | A lot of that gets that capital or wealth creation

00:10:04.240 | is happening in the private markets.

00:10:07.400 | And then two, obviously, there's a lot of capital

00:10:10.480 | that's needed in the private markets.

00:10:12.920 | And then what happened with the market collapsing

00:10:16.640 | was a lot of that capital that they

00:10:19.200 | expected to get exits from public offerings, from IPOs,

00:10:24.560 | didn't get exits.

00:10:26.200 | They got stuck in private markets.

00:10:28.840 | Right.

00:10:29.720 | And so then we found is that some of them became sellers.

00:10:34.640 | At discounts.

00:10:36.120 | Well, discount or not discount, basically,

00:10:38.960 | like there's a market price.

00:10:41.320 | And the market price is mostly being

00:10:43.280 | driven by the public markets.

00:10:44.600 | The multiples public markets have a huge influence

00:10:47.000 | on private markets.

00:10:48.480 | And so if you are a seed investor

00:10:51.800 | and you invested at whatever in Stripe at a $10 million

00:10:55.400 | valuation and Stripe is now worth $50 billion,

00:10:59.640 | you're probably a seller.

00:11:03.240 | And there's just a ton of people like that,

00:11:05.400 | a ton of funds and early employees.

00:11:09.920 | And so you can get into, or we have

00:11:12.840 | been able to get into, basically, I think,

00:11:15.920 | the best companies in the world at valuations

00:11:19.400 | that I think are fair, attractive, and certainly way

00:11:23.720 | lower at deep discounts to 2021.

00:11:27.760 | And so you can say, OK, do I think the revenue multiple is

00:11:31.440 | good for the best company in the world?

00:11:33.280 | But we're into the best companies

00:11:35.320 | in the world, in my opinion.

00:11:37.240 | And that's basically the access challenge.

00:11:39.200 | And that's been freaking incredible, incredible.

00:11:44.200 | Because in a way, my job is basically

00:11:46.480 | to give investors, normal investors,

00:11:50.080 | access to the best investments they previously couldn't get.

00:11:53.680 | And that is real estate and credit and now venture.

00:11:59.760 | And so tell us about the structure of the team

00:12:02.840 | looking for these deals.

00:12:04.640 | How does that work?

00:12:06.600 | Do you have a team?

00:12:07.400 | Do they email people that they know in their network?

00:12:11.200 | How does that whole process work where

00:12:12.920 | once you identify a promising investment,

00:12:15.160 | you actually are able to get on the cap table

00:12:17.640 | and make that investment?

00:12:19.080 | Yeah.

00:12:19.720 | Yeah, I mean, let me just start with what's normal.

00:12:22.160 | And then let me tell you how we kind of took

00:12:24.040 | a different approach.

00:12:24.840 | Because the normal way is that maybe Sam and you and I

00:12:30.960 | will start a venture fund.

00:12:32.440 | We'll go off and see you and me.

00:12:33.960 | And maybe we have a dog.

00:12:35.960 | I have a dog.

00:12:36.680 | And we would go raise money from either some super high net

00:12:41.640 | worth people or some small institutions.

00:12:45.960 | And our first fund might be $10, $20, $30 million.

00:12:50.320 | Then, or let's say it's $200 million, whatever.

00:12:52.880 | It's a larger, medium-sized fund.

00:12:54.760 | Then basically we hired a guy who

00:12:56.720 | used to work at one of these larger funds who

00:12:58.680 | was freaking incredible.

00:13:01.120 | And he showed up.

00:13:01.880 | And he's like, OK, this is what we need to do.

00:13:04.560 | This is what I've always done.

00:13:06.240 | I start emailing executives of these companies.

00:13:09.480 | And I have these cold emails go out.

00:13:11.760 | And then I work my network and try to have coffee with them.

00:13:15.000 | And we watched him do it.

00:13:16.080 | And we did a little bit.

00:13:17.120 | And we were like, well, that doesn't

00:13:19.080 | seem like a great way to do business.

00:13:22.240 | And then the way venture funds normally invest

00:13:25.560 | is they invest in what they can get.

00:13:29.320 | So it's somewhat like they think of it--

00:13:32.480 | this is you have a funnel.

00:13:34.800 | And you try to get deal flow.

00:13:36.880 | And you try to get as much deal flow as possible

00:13:39.960 | by networking and by emailing.

00:13:42.680 | And then basically maybe you spend your day

00:13:46.440 | meeting with 10 companies a day or five companies a day.

00:13:49.680 | And it's like a CRM process, right?

00:13:51.880 | You have leads.

00:13:53.200 | And you have-- and you're basically

00:13:55.120 | trying to just get as many companies to your funnel.

00:13:57.320 | And as you get down through the funnel,

00:13:58.940 | you start to filter to the best companies.

00:14:01.400 | And it's a combination of what you can get into your funnel,

00:14:05.040 | what companies you like, and then what

00:14:06.880 | companies will take your money.

00:14:08.320 | There can only be one lead, series A, one lead, series B.

00:14:11.720 | And so unless you're the top, top, top ones, which

00:14:15.880 | basically are Sequoia, maybe Interest and Hurwitz,

00:14:19.400 | maybe there's five.

00:14:21.160 | There's not that many that basically the best companies

00:14:24.480 | will choose them always.

00:14:27.400 | Like you'll always choose Sequoia over a venture fund

00:14:31.040 | that is not in the top five to 10.

00:14:34.560 | Because essentially, especially in the beginning,

00:14:37.560 | companies are choosing a name brand

00:14:40.800 | to try to build their own brand.

00:14:45.200 | So the press will write about some Sequoia-backed company

00:14:49.240 | working on AI, some Sequoia-backed company working

00:14:51.720 | on SaaS.

00:14:53.160 | And you're really getting brand affiliation.

00:14:56.680 | So you take the money basically for brand affiliation.

00:14:59.160 | And that's why in the series A, you can't win that fight.

00:15:05.000 | Can't win that fight.

00:15:05.920 | That is a fight that's a losing battle.

00:15:08.120 | If you're in the series A space and you're not

00:15:10.040 | one of these brands, you're getting

00:15:11.720 | the second best companies.

00:15:14.360 | Adverse selection.

00:15:15.440 | So we said, well, we don't want to do that.

00:15:17.200 | That's who wants adverse selection.

00:15:18.640 | That doesn't make sense.

00:15:20.000 | Plus it's really, really risky.

00:15:21.560 | It's really risky.

00:15:22.280 | Series A is, and before, super risky.

00:15:24.840 | And so as you get later stage, it's a very different dynamic.

00:15:28.960 | Because the later stage companies

00:15:31.840 | take Avanta, which is not that late a stage.

00:15:35.400 | But if you take a business that has 100 employees or 200

00:15:39.320 | employees or 500 employees, and they

00:15:41.640 | may have $50 million in revenue or $200 million in revenue,

00:15:46.800 | the money they're raising is totally different.

00:15:49.920 | They don't really need brand affiliation.

00:15:52.480 | Their value add provided by a later stage investor

00:15:55.680 | is very low, very little.

00:15:58.840 | Maybe some business introductions,

00:16:00.520 | maybe it's nothing.

00:16:02.040 | Often it's negative because the later stage investor

00:16:06.200 | is more of a financial institution

00:16:11.120 | and less of a company builder.

00:16:12.960 | And financial institutions have different incentives

00:16:16.000 | than company builders, which is why a lot of companies

00:16:19.640 | who raise a lot of money in 2021 have a lot of problems.

00:16:22.400 | So we basically started out trying

00:16:25.360 | to get out there and talk to great companies.

00:16:28.640 | But basically, people weren't going to take our money, mostly.

00:16:33.080 | They'll take some.

00:16:33.880 | So we flipped it.

00:16:34.760 | So what are the best companies?

00:16:36.800 | And you can go look at Bessemer's, Cloud 100.

00:16:39.080 | You can go-- you have to be a little bit knowledgeable

00:16:41.680 | to know this is a really good company.

00:16:44.520 | Most people haven't heard of these companies.

00:16:46.520 | But if you know what you're talking about,

00:16:48.680 | you know that-- if you asked 100 venture people, what

00:16:52.160 | are the best 20 companies, they probably more or less agree.

00:16:57.320 | That's what's so interesting.

00:16:58.560 | So it's actually not an identification problem.

00:17:01.280 | It's actually an access problem.

00:17:03.240 | And then you have this dynamic where

00:17:05.280 | there's a lot of sellers in their cap tables.

00:17:08.160 | There's a lot of people who basically, like,

00:17:09.920 | I'm a seed investor.

00:17:11.640 | I just made 20x.

00:17:14.000 | I'm not even that price sensitive.

00:17:16.520 | If I make 21x or 19x, it doesn't matter to me.

00:17:20.240 | Not that much.

00:17:20.920 | I mean, you basically-- so it's like a really interesting

00:17:24.120 | dynamic where you have a somewhat price insensitive

00:17:26.880 | seller, and you can get into investing

00:17:29.640 | in the best companies in the world that are not public.

00:17:33.800 | So we found a really-- and that may be just a moment in time.

00:17:38.280 | I think when the companies are going public,

00:17:40.000 | and there's not a lot of money in the market today.

00:17:43.920 | So there's a moment where we're just hand over fist

00:17:47.920 | trying to get by into these best companies.

00:17:51.520 | And we're doing it.

00:17:53.960 | I mean, it's just unbelievable.

00:17:56.440 | I hear you on being the brand name, a top five brand name

00:17:59.760 | company, leading the investment charge.

00:18:02.480 | And then you see these other companies co-invest--

00:18:06.240 | or not co-invest.

00:18:07.200 | They're like--

00:18:07.760 | They follow.

00:18:08.440 | They follow, right?

00:18:10.720 | Is that so bad to be able to follow a big brand company?

00:18:14.680 | Because it all kind of depends on your size, too.

00:18:17.200 | Because if you have a smaller fund, then if you follow,

00:18:19.860 | you don't have to be the lead.

00:18:21.120 | Are there better terms for the lead investors

00:18:23.080 | than the follow investors?

00:18:25.120 | No, no.

00:18:25.720 | But you can't be a follow.

00:18:28.240 | The follow is also--

00:18:30.360 | Also tough.

00:18:31.520 | Also tough.

00:18:32.520 | And it's the lead investor does the work.

00:18:36.400 | The follow investor just tags along.

00:18:39.160 | They get the same terms.

00:18:40.920 | The only main difference is the lead investor usually

00:18:43.800 | gets a board seat.

00:18:45.640 | Otherwise, economically, it's the same terms.

00:18:48.240 | OK.

00:18:49.360 | So strategically, wouldn't it be best

00:18:51.320 | to build the best relationships with the best big brand name

00:18:56.720 | VCs and then just follow along with as much as they do?

00:19:00.280 | Yeah, they don't want-- that's not how it works.

00:19:03.080 | That's not how everybody wants to follow the best VCs.

00:19:07.840 | And so who decides who the follow is?

00:19:11.040 | Typically, the follow is actually earlier investors.

00:19:14.280 | Earlier investors who invested in the beginning will follow.

00:19:19.760 | There's not usually that many new investors following.

00:19:23.680 | And the new investors following, normally, the company

00:19:27.440 | will decide or the venture firms will trade deals.

00:19:31.600 | I see.

00:19:32.240 | I'll let you follow into this great company

00:19:34.120 | if you let me follow into your great company.

00:19:36.440 | There's a value.

00:19:37.520 | The follow needs to bring some value, and usually values

00:19:41.160 | some kind of like quid pro quo.

00:19:45.120 | Yeah, interesting.

00:19:46.480 | Yeah, it's really hard to follow.

00:19:48.440 | We followed Vanta, but that was like we had a relationship.

00:19:53.400 | And so I think over time, we will deliver--

00:19:57.200 | we have some really interesting strategies that

00:19:59.160 | will deliver greater and greater value,

00:20:01.480 | and we will be able to follow.

00:20:04.520 | But another thing that's happened,

00:20:06.320 | you may notice, in the last year or two,

00:20:09.280 | is that great companies aren't raising money.

00:20:11.600 | What are they doing?

00:20:12.440 | You can't follow if they don't raise.

00:20:14.920 | And they're not going to raise because they raised previously

00:20:19.600 | at a really high valuation, and they

00:20:22.760 | don't want to do down round.

00:20:24.360 | What if they run out of money, though?

00:20:25.600 | They got 18 months.

00:20:26.400 | Most of these great companies raised

00:20:29.080 | unbelievable amounts of money.

00:20:31.800 | Unbelievable amounts of money.

00:20:33.000 | So it's like a funny thing.

00:20:34.080 | You talk to a company, they raise money

00:20:36.240 | at 400 times revenue.

00:20:39.200 | And they have half a billion dollars in the bank.

00:20:43.680 | Are they going to raise?

00:20:44.800 | Nope.

00:20:45.440 | And they're burning $50 million.

00:20:48.080 | They have 10 years of money in the bank.

00:20:50.920 | So what happened is that--

00:20:53.840 | it was a challenge for us initially--

00:20:55.440 | that the best companies all had a lot of money

00:20:58.120 | and weren't going to raise.

00:20:59.200 | And so then you're stuck.

00:21:00.400 | The only people raising money were the second best companies

00:21:02.900 | or the not good companies.

00:21:04.840 | And then you're raising in a down round.

00:21:09.120 | And a down round has all sorts of bad juju, bad dynamics,

00:21:15.120 | bad structure, all sorts of problems.

00:21:18.400 | That's a whole separate thing.

00:21:19.840 | So now you're basically coming into something that's already

00:21:22.380 | sort of problematic.

00:21:24.920 | It's a down round.

00:21:25.760 | I mean, you can manage it in some cases,

00:21:29.600 | but it's not a good dynamic.

00:21:31.840 | So normally what was happening is

00:21:34.080 | companies didn't want to take down rounds.

00:21:36.400 | And so they were taking structured rounds

00:21:38.440 | or dirty term sheets.

00:21:40.840 | So they would basically trade valuation, headline valuation.

00:21:45.720 | So they'd say, OK, my company was worth $3 billion,

00:21:48.960 | but really it's only worth $500 million.

00:21:50.760 | I'm going to tell everybody, I'll

00:21:52.400 | say I'm a financial investor.

00:21:55.320 | I'll let you say it's worth $3 billion, but on the side,

00:21:58.160 | I'm going to have a side letter with you where

00:22:00.080 | I'm going to get warrants, and I'm going to get two times

00:22:02.520 | liquidation preference.

00:22:03.480 | I'm going to get all these sort of financial structures.

00:22:06.160 | Basically, you have a headline where

00:22:08.720 | you can tell your employees and everybody

00:22:10.560 | that you didn't have a down round,

00:22:12.000 | but actually you did have a down round.

00:22:14.800 | And those structured term sheets,

00:22:16.520 | those dirty term sheets, it causes all sorts of problems.

00:22:21.160 | Yeah.

00:22:22.320 | No, I hear you.

00:22:24.080 | So in terms of--

00:22:25.640 | it sounds like a very competitive process

00:22:29.120 | to get the best deals.

00:22:30.800 | And I know that you, Fundrise Innovation Fund,

00:22:33.280 | recently invested in Inspectify.

00:22:36.000 | And I was reading about the company, and it sounds great.

00:22:38.760 | PropTech, it has an app that consolidates

00:22:42.960 | all the process of doing the inspection, home inspection.

00:22:46.240 | And Fundrise itself is a super user

00:22:49.600 | where Inspectify has done at least,

00:22:53.040 | sounds like 5,000 inspections for Fundrise properties.

00:22:57.000 | So I can see the synergies in that investment.

00:23:01.000 | And it looks like a $4 million investment

00:23:02.800 | at only a $47 million valuation.

00:23:07.520 | Sounds good to me with the synergies involved

00:23:10.360 | and with the pain it is to do these inspections

00:23:13.800 | for institutional investors or larger, smaller landlords.

00:23:18.200 | Because I've gone through the process before,

00:23:20.040 | and it's quite cumbersome.

00:23:21.720 | So I can see, as an investor in the innovation fund,

00:23:24.920 | the value add there and why Inspectify

00:23:27.640 | would want Fundrise to be on the board or as a lead investor.

00:23:32.680 | But can you talk about the other companies?

00:23:36.640 | Because I look at the innovation fund

00:23:38.200 | and I see artificial intelligence and machine

00:23:40.760 | learning as one of the areas to invest in,

00:23:43.320 | modern data infrastructure, development operations,

00:23:46.760 | financial technology, and then real estate and property

00:23:49.920 | technology.

00:23:51.320 | So how does the innovation fund identify and get

00:23:55.080 | access to the best deals in those other categories?

00:23:58.560 | That's a really good question.

00:23:59.960 | So clearly, we are value add for Inspectify.

00:24:02.920 | And Inspectify is awesome.

00:24:05.440 | It's even better than you realize,

00:24:08.320 | which we can talk about that as a specific investment.

00:24:10.840 | But you had two questions.

00:24:12.600 | You said, how do we identify?

00:24:14.800 | And you could also include an identification valuation.

00:24:18.960 | You have to know it's good.

00:24:20.720 | And then a separate thing, how do you get access?

00:24:23.120 | And so let me do access first.

00:24:24.920 | Because we've been buying and investing in these companies

00:24:29.800 | by buying from existing shareholders who have to sell,

00:24:34.200 | who want to sell.

00:24:36.000 | And the company basically just has to approve it.

00:24:40.680 | And we find basically that they-- whatever.

00:24:44.240 | We bought shares from what looked

00:24:47.920 | like an intern in a company that's actually

00:24:51.440 | gone just through the roof.

00:24:53.520 | I mean, it's probably one of the greatest companies happening

00:24:57.120 | in the world today.

00:24:59.280 | And when we invest basically in some early employee

00:25:02.400 | they're selling-- like, I don't know if he's--

00:25:05.320 | I feel like he's sold because he's like, well,

00:25:08.480 | I made a couple million dollars.

00:25:09.840 | I'm just going to--

00:25:11.240 | fine, I'm happy.

00:25:13.360 | And the company had to approve it.

00:25:14.960 | And actually, in this instance, the company said, OK,

00:25:16.840 | we'll approve it.

00:25:17.400 | And you can come on our cap table.

00:25:18.800 | But you can't tell anybody who the company is.

00:25:20.800 | Huh.

00:25:21.300 | [LAUGHS]

00:25:21.800 | It's like, OK, well, fine, I'll take that.

00:25:26.040 | So the company has to approve it.

00:25:28.080 | But by and large, the companies have

00:25:31.240 | been OK with approving it.

00:25:33.120 | Like, they don't-- we're replacing some early investor

00:25:37.960 | or some early employee with us.

00:25:39.520 | We're a long-term investor.

00:25:40.680 | We're not a seller.

00:25:41.840 | And so they've been approving it.

00:25:44.000 | So that's how we've been able to get access.

00:25:47.400 | And it's been-- because the market for secondaries

00:25:50.560 | is very inefficient.

00:25:52.840 | It is such a mess.

00:25:55.560 | I mean, just this random broker gets this random person

00:25:59.800 | selling.

00:26:00.400 | And they call random people.

00:26:03.760 | So it's like a very inefficient market.

00:26:06.240 | And that's great.

00:26:06.960 | That's a great thing.

00:26:08.520 | OK.

00:26:09.240 | I guess it's great--

00:26:10.080 | That's the answer to this question.

00:26:12.320 | --if you know what you're doing and if you can buy it

00:26:14.920 | at a valuation you think is below what the long-term

00:26:17.800 | valuation will be.

00:26:19.840 | Well, that's not exactly how I would frame it.

00:26:22.320 | Well, in terms of buying the shares from the interning,

00:26:25.520 | let's clarify that a little bit.

00:26:26.880 | Because the company says you can't tell anybody.

00:26:28.920 | But as an investor in the innovation fund,

00:26:30.920 | I need to know what I'm investing in.

00:26:32.440 | So--

00:26:33.200 | It's not normal.

00:26:33.960 | That's not a normal thing.

00:26:35.440 | Normally, yeah, we can-- I mean, it was a special company

00:26:40.640 | with special circumstances.

00:26:41.720 | Normally, it's like-- yeah, the company just says,

00:26:45.560 | great, you're on my cap table.

00:26:47.280 | And for example, we bought Service Titan.

00:26:50.840 | Service Titan is like-- according to-- it's

00:26:54.600 | on the Bessemer's 100, which Bessemer's a famous venture

00:26:57.560 | fund.

00:26:58.060 | I think it's number seven on Bessemer's list.

00:27:00.960 | And we ended up on Service Titan's cap table.

00:27:03.880 | And whatever, that was the end of it.

00:27:07.680 | Like, it was just like, approved.

00:27:10.560 | So and then you said like, are you

00:27:14.080 | focused on buying it at a great long-term price?

00:27:18.120 | And I think of it as the company that is growing explosively.

00:27:25.120 | This is what we-- if anybody paid any attention to 2010s,

00:27:29.080 | like, the great companies went to valuations

00:27:32.360 | that were just-- blew people's mind in retrospect.

00:27:36.280 | Because they grew so much.

00:27:38.520 | That's why in venture, the power law,

00:27:42.040 | the sort of asymmetrical outcomes, the 1 in 100

00:27:46.880 | drives all the returns.

00:27:48.960 | And so you're obsessed with getting

00:27:50.600 | into the sort of like, the best, best companies.

00:27:53.880 | That like a Google-- take Google or Facebook.

00:27:56.880 | Both times when they raised money for their series B,

00:28:00.200 | or A, or C, I think it was at crazy valuations.

00:28:05.000 | Oh my god, who would pay $2 billion for Google?

00:28:07.720 | Who'd pay $1 billion for Facebook?

00:28:11.600 | So valuation is important.

00:28:14.280 | But the quality of the company and the quality of the growth

00:28:16.860 | is way more important in growth investment,

00:28:21.160 | high, high, high growth investment.

00:28:23.760 | Got it.

00:28:24.260 | Got it.

00:28:25.800 | Everybody has been talking about AI recently.

00:28:28.520 | And it sounds like AI is going to be a long-term trend.

00:28:32.640 | How do you look at the five categories of investments?

00:28:36.800 | Do you break it up by 20, 20, 20, 20, 20, 20% to get to 100%?

00:28:41.320 | Or do you have flexibility in terms of how you're

00:28:43.760 | going to structure the fund?

00:28:45.280 | Yeah, I mean, the categories are not prescriptive.

00:28:50.420 | You really want to invest in the best companies.

00:28:53.580 | And that's the most important thing.

00:28:56.900 | And so AI, when we launched the fund a year ago,

00:29:01.660 | was not obvious to us the best category to invest in.

00:29:06.700 | And then what's happened with the JATGBT, OpenAI,

00:29:12.460 | Large Language Model, Transformers,

00:29:15.260 | wherever you want to describe it,

00:29:16.820 | it's caused a sea change in opportunity.

00:29:22.660 | And so it's become our primary focus.

00:29:26.940 | And that's really one of the most interesting things

00:29:32.220 | happening in the world.

00:29:34.820 | And because of the popularity of AI,

00:29:38.580 | I'm assuming valuations have gone through the roof as well.

00:29:41.580 | So it's one of those things where

00:29:43.620 | you kind of have to balance that as well.

00:29:46.540 | Yeah, yes.

00:29:47.500 | Well, so you have to basically get inside that to really have

00:29:50.700 | a better understanding of what to do.

00:29:53.980 | Because AI is-- even the word AI doesn't mean, actually,

00:29:58.860 | all that much.

00:29:59.820 | It has sort of this broad definition.

00:30:02.900 | It's almost a movement as much as it is a technology.

00:30:07.740 | And so what's happened--

00:30:10.380 | I mean, everybody probably knows all this, right?

00:30:13.020 | But basically, the hardware and the algorithms

00:30:18.540 | usually got to a place where they sort of like--

00:30:21.860 | they passed some cusp where it enabled a whole set

00:30:28.020 | of new applications.

00:30:29.900 | And that sort of dynamic actually

00:30:31.700 | is the way tech and venture works.

00:30:35.060 | So the pattern is you have a new piece of hardware.

00:30:38.460 | So you take a mainframe.

00:30:40.220 | Mainframe to PC was a change in hardware.

00:30:42.740 | And you could also go before mainframe.

00:30:44.400 | There were punch card machines.

00:30:45.860 | IBM was a punch card machine company.

00:30:48.460 | Or PC to the internet, or the internet to mobile,

00:30:52.460 | or mobile to cloud.

00:30:53.980 | There's like basic technology innovations that happen.

00:30:59.260 | And so take mobile as an example.

00:31:01.380 | Mobile was a combination of what happened with Spectrum,

00:31:05.660 | and Qualcomm, and Apple, and basically it was hardware.

00:31:10.260 | And then inside-- so that's like the bottom of the stack.

00:31:13.580 | And you go up to the sort of middle of the stack, which

00:31:16.140 | different people have different ways to describe it.

00:31:18.300 | But you call it sort of the platform.

00:31:20.380 | That's what I think is a good handle for it.

00:31:23.340 | And so the platform is like where software engineers play.

00:31:27.900 | Like Twilio is a platform company, right?

00:31:30.140 | Consumers don't actually talk to Twilio.

00:31:33.100 | Twilio is being used by software engineers

00:31:35.980 | to enable an application like Uber.

00:31:38.500 | Uber is an application.

00:31:40.500 | And so the App Store created an ability to have apps.

00:31:44.660 | And the applications came after the hardware, right?

00:31:47.860 | Uber was 2011, but the iPhone was 2008.

00:31:52.620 | So what's happened is that like NVIDIA,

00:31:55.380 | at the hardware level of AI, that's

00:31:59.660 | clearly blowing up and mature.

00:32:03.180 | And then in the middle of the stack, which

00:32:06.180 | is the platform level, you have like clouds,

00:32:09.340 | and you have all this data infrastructure.

00:32:12.300 | And then as you get to the top, the applications,

00:32:14.420 | there's very few.

00:32:15.740 | And I'm taking this from Tomasz Tangas, who's

00:32:18.460 | one of our partners.

00:32:20.220 | But basically, if you look at the cloud,

00:32:23.940 | cloud companies are worth $3 trillion,

00:32:27.380 | or something like that.

00:32:28.300 | And that's Amazon, AWS, and Google, and Microsoft.

00:32:34.140 | And there's like four or five cloud companies.

00:32:37.540 | And they're worth $3 trillion.

00:32:38.780 | And there's 100 apps that are public that

00:32:42.340 | are worth $3 trillion, worth about the same.

00:32:45.060 | And apps are like Snowflake or ServiceNow or something, right?

00:32:49.540 | So that same thing's happening in AI.

00:32:53.540 | The apps basically haven't been invented, really.

00:32:56.380 | Or if they have, nobody knows about them, other than maybe

00:32:59.060 | chat GPT.

00:33:00.460 | And everything that's sort of happened is like infrastructure,

00:33:04.060 | platform layer, apps.

00:33:06.860 | And so this is actually always how it happens.

00:33:12.220 | Maturity moves its way up the stack.

00:33:15.380 | And so we can play AI different places in the stack.

00:33:21.020 | And so the data infrastructure, which

00:33:24.460 | is sort of the platform level underneath of AI,

00:33:28.620 | you could also think of it as like if there's a gold rush,

00:33:31.060 | you can try to find gold, or you can sell picks and shovels.

00:33:34.020 | Data infrastructure are the picks and shovels.

00:33:36.740 | Everybody needs these technologies

00:33:40.140 | to be able to do the stuff that is the application.

00:33:43.740 | And we've been investing like crazy

00:33:46.420 | into the picks and shovels, because that's clear.

00:33:50.740 | And yes, and pricing, like the LLMs.

00:33:54.180 | The LLMs are-- there's only really five major--

00:33:58.220 | What's an LLM?

00:33:59.740 | Large Language Model.

00:34:00.980 | Yeah, Large Language Model.

00:34:02.220 | So OpenAI or chat GPT is like the biggest, most famous LLM.

00:34:06.980 | They've kind of, in a way, like reinvented it.

00:34:09.420 | Because it was invented by Google, actually,

00:34:11.340 | funny enough.

00:34:12.180 | OpenAI is the biggest.

00:34:13.660 | Then there's Anthropic, Cohere.

00:34:16.700 | Databricks basically bought one.

00:34:19.220 | So the point is there's-- because Nvidia sort of has one

00:34:21.900 | that's partnered with a company.

00:34:25.340 | So five LLMs or four LLMs, not that many.

00:34:32.140 | And because as I said, the deeper you go into the stack,

00:34:35.020 | the less companies there are.

00:34:37.100 | So there'll be less platforms than there are apps.

00:34:39.780 | But there'll be more platforms than there are hardware

00:34:42.380 | companies.

00:34:44.540 | And so in some of the cases, like we invested in Databricks.

00:34:49.580 | Databricks is a platform company.

00:34:51.660 | They are one of the great companies in the world

00:34:55.780 | right now.

00:34:56.980 | So everybody who's in the tech space knows about Snowflake.

00:34:59.700 | And Snowflake's been absolutely on a tear.

00:35:02.620 | Databricks is comparable to Snowflake

00:35:05.580 | in terms of opportunity and excellence.

00:35:08.020 | My opinion, many ways better.

00:35:10.660 | And even better for what's happening

00:35:12.940 | in the world, which is that Databricks is really

00:35:16.020 | the go-to company for data rather than databases, which

00:35:20.460 | is a different kind of-- we're down in the weeds here.

00:35:23.060 | But we invested in Databricks.

00:35:25.860 | Databricks is-- to be able to get Databricks now and own

00:35:31.300 | a chunk of that company is just so exciting.

00:35:34.300 | And they are integral.

00:35:37.620 | Like, it's a different risk profile.

00:35:40.020 | You're not taking sort of like, is this company

00:35:42.220 | going to be successful at risk?

00:35:44.100 | You're taking like, how much are they going to grow risk?

00:35:48.940 | And I think they're going to grow a lot.

00:35:50.980 | How much did the innovation fund invest in Databricks,

00:35:54.220 | and at what valuation?

00:35:56.140 | We put $25 million into Databricks,

00:35:58.940 | and it's 25% of the fund, about.

00:36:01.740 | Oh, wow.

00:36:02.240 | So that's a really bullish--

00:36:05.060 | High conviction.

00:36:05.980 | High conviction idea.

00:36:07.380 | Yes.

00:36:07.880 | At what valuation is Databricks?

00:36:13.100 | I would have to go check.

00:36:15.380 | One of the things that's sort of tricky for us

00:36:17.380 | is that the best companies, they don't--

00:36:23.780 | getting the valuation is not really what is good for them.

00:36:29.420 | So if we invest-- not Databricks,

00:36:31.260 | but pick another company, we invested,

00:36:32.860 | and we invested a deep discount to their last round.

00:36:36.820 | They don't like us talking about that.

00:36:39.780 | OK.

00:36:40.580 | Right.

00:36:41.080 | All right.

00:36:41.580 | So if we want to get the best companies,

00:36:43.500 | we don't run around talking about how we got them

00:36:45.620 | at great deep discounts.

00:36:46.980 | Got it.

00:36:47.660 | I hear you.

00:36:49.060 | I hear you.

00:36:49.820 | Yeah.

00:36:52.140 | And I think the discount is sort of irrelevant.

00:36:54.780 | It's a question of what sort of price to growth ratio,

00:36:59.580 | or what do you--

00:37:02.340 | the discount is a nice way to back into that.

00:37:06.260 | If I look at their growth rates, I look at their opportunity,

00:37:09.180 | I look at basically the multiple I'm buying it at.

00:37:13.740 | I don't really care if it's a discount or premium.

00:37:15.780 | I care about the future.

00:37:16.900 | What the future is.

00:37:18.020 | Right, because this is a growth fund.

00:37:19.600 | This is a private growth fund.

00:37:21.420 | So interesting.

00:37:22.740 | So wow, 25% of the fund in Databricks.

00:37:24.580 | So we got to do a lot of reading on that.

00:37:28.300 | But this is the thing.

00:37:31.180 | I think as a common person, we couldn't have gained access

00:37:34.220 | to Databricks, right?

00:37:35.180 | We can't invest in Databricks.

00:37:36.700 | It's a big secondary.

00:37:38.180 | Right.

00:37:38.900 | Are you allowed to reveal--

00:37:41.380 | actually, yeah, who were the lead investors in Databricks?

00:37:43.580 | Do you know off the top of your head?

00:37:45.140 | [LAUGHTER]

00:37:46.260 | So the top VCs?

00:37:47.500 | The top, top, top.

00:37:48.580 | I mean, the other thing that happens

00:37:50.120 | with these sort of key platform companies

00:37:54.260 | is that you also see the cloud companies invest in them.

00:37:57.820 | So you see Google and Microsoft and NVIDIA

00:38:02.020 | all invest into the sort of certain--

00:38:03.940 | that's another really interesting thing we've seen.

00:38:06.300 | Like, oh my god.

00:38:07.940 | It's like, who's who?

00:38:10.020 | And then the other thing about our underwrite,

00:38:12.660 | we talked about how we're different.

00:38:14.880 | A lot of venture people are CS, computer science degree,

00:38:19.420 | real engineers who maybe went and did-- built a company

00:38:22.380 | or maybe went into finance.

00:38:24.060 | But a lot of venture people are also just finance people.

00:38:31.620 | I would say especially the late stage investors

00:38:34.020 | are mostly former investment bankers or management

00:38:36.620 | consultants.

00:38:38.180 | We use the technology.

00:38:41.340 | We have people on our team who live inside

00:38:44.500 | and build with these platforms.

00:38:47.340 | Like, our ability to understand Databricks

00:38:50.860 | or go down the list of data orchestration or data

00:38:57.100 | governance-- we invest in a data governance company.

00:39:00.500 | Our engineers-- I love having engineers involved with us

00:39:03.900 | underwriting companies because we can buy their software

00:39:07.500 | and use it.

00:39:09.660 | Or we're already a big customer.

00:39:11.260 | That's what happens to make them companies like us.

00:39:14.820 | And so our underwriting of technology,

00:39:17.540 | it's like a deep underwriting.

00:39:21.060 | And so as the investor looking to invest in the innovation

00:39:24.620 | fund, I'll go to Fundrise and I'll

00:39:26.820 | look at the publicly stated 17 assets invested so far.

00:39:31.820 | Not all are private.

00:39:33.660 | When I look at the investment-- so let's say I say,

00:39:35.980 | oh, Inspectify.

00:39:37.420 | Looks like a no-brainer.

00:39:38.740 | Wow.

00:39:39.380 | Devaluation of the funding.

00:39:40.500 | Last round of funding was only $47 million.

00:39:43.060 | I think the total addressable market is much bigger

00:39:45.380 | and they can gain market share.

00:39:46.740 | And it could be easily $500 million company.

00:39:51.620 | When I invest my money in the fund now,

00:39:55.180 | it seems like I'm able to cherry pick or have

00:39:57.780 | a competitive advantage to say, oh, this is what you guys have?

00:40:01.380 | OK, I'm going to invest in it.

00:40:03.540 | So how does an investor think about investing

00:40:06.540 | in a fund that already has investments?

00:40:11.220 | And how do those gains accrue to the investor,

00:40:14.220 | to the new investor, who didn't invest at the exact same time

00:40:18.540 | the fund invested in these specific companies?

00:40:22.660 | Right.

00:40:24.820 | Let's try to do the mechanics of it and then the so what.

00:40:28.460 | So the mechanics, investor buys into the fund.

00:40:32.660 | The fund, let's say, round numbers, $100 million today.

00:40:37.420 | Put in $1 million, you own 1% of the fund.

00:40:40.460 | And the fund has $100 million and buys or invests

00:40:43.700 | into Inspectify or Databricks or ServiceTitan or whomever.

00:40:49.060 | And so you essentially own your 1% of those investments.

00:40:54.220 | And if we make more investments, you

00:40:56.420 | would own a percentage of those investments, too.

00:40:59.780 | It's a fund.

00:41:00.280 | It's a portfolio.

00:41:01.860 | It's like a mutual fund, except for it's a private company,

00:41:05.580 | not public companies.

00:41:07.460 | The pricing in the private market is very challenging.

00:41:11.420 | So when we invest, obviously, that's a good sign.

00:41:13.460 | That's the price.

00:41:14.780 | When they raise the next round, that's

00:41:17.100 | usually the easiest way to kind of re-strike the nav.

00:41:21.140 | And as we get more and more companies and more and more

00:41:24.060 | momentum, which we're getting some serious momentum

00:41:26.980 | these days, there'll be more and more companies raising.

00:41:31.740 | If you have 100 companies, which would be a lot,

00:41:34.060 | but let's say we have 30, probably every company

00:41:38.220 | raises every 18 months.

00:41:40.860 | You'll start seeing fairly frequent repricing.

00:41:44.020 | And it can go down, too, by the way,

00:41:45.820 | just to make my regulator happy.

00:41:48.260 | Companies can go out of business or raise at a lower round

00:41:51.220 | or have some kind of distress.

00:41:53.780 | And our job is to basically try to price it as best we can.

00:42:00.180 | And usually, the best way to do that

00:42:02.580 | is a strong external signal.

00:42:06.100 | And so when something's going to reprice up or down,

00:42:10.540 | like a company, I think that in the beginning,

00:42:14.540 | there's less momentum, less repricing.

00:42:16.980 | As we get more momentum, there'll be more repricing.

00:42:20.300 | And I think it'll be harder to try to time that.

00:42:23.940 | Sure.

00:42:24.980 | Yeah, because as a normal, let's say,

00:42:27.500 | public stock or bond investor, you buy it.

00:42:30.060 | And that's day one.

00:42:32.020 | And you gain or lose.

00:42:33.980 | And for other venture capital funds that I've invested in,

00:42:38.740 | so we commit capital.

00:42:40.580 | And then there's capital calls over a two- to three-year

00:42:43.180 | period.

00:42:44.380 | But given we committed capital at the start of the fund,

00:42:48.020 | the logic is we accrue all the gains as the investments come

00:42:51.980 | in and go out.

00:42:53.860 | And so with the innovation fund, you've got capital.

00:42:57.380 | You've committed the capital.

00:42:59.180 | And then it's open to new capital.

00:43:01.740 | So understanding the mechanics is helpful.

00:43:05.180 | And so when I look at the portfolio, let's say--

00:43:08.500 | let's just, for example, I know that one of the investments

00:43:11.060 | in Spectify is going to do a new round of funding at 10x--

00:43:15.180 | let's just say 10x the valuation that Fundrise Innovation

00:43:19.300 | Fund was able to invest in.

00:43:20.580 | So instead of $47 million, it goes to $500 million

00:43:23.580 | in the next series.

00:43:26.100 | Could I think to myself-- or let's say it's Databricks,

00:43:28.420 | and Databricks is 25% of the fund.

00:43:30.580 | And it raises at 10x, which it's not going to do, but maybe it,

00:43:33.540 | but 10x.

00:43:36.660 | Would it not be strategically wise to then say, oh, OK, well,

00:43:40.580 | let me go invest as much as possible in the Fundrise fund

00:43:43.500 | before the NAV reprices?

00:43:46.260 | I mean, you're asking at least two different questions.

00:43:49.660 | One is, if you have insider information--

00:43:52.780 | Let's not say insider information.

00:43:54.220 | Let's say you believe that it's going to be repriced.

00:43:57.140 | Even that-- the definition of insider information

00:44:01.820 | applies to public companies.

00:44:03.900 | So I don't even know how insider information

00:44:08.140 | works for private companies.

00:44:09.300 | That's confusing to me.

00:44:11.540 | But obviously, if you have an asymmetrical information

00:44:16.300 | advantage, that's how a lot of markets work.

00:44:20.260 | I think it's unlikely that you would have that very often.

00:44:23.340 | Most people don't know when--

00:44:26.780 | most people don't even know if they've ever

00:44:28.620 | heard of these companies.

00:44:29.980 | This is like-- you have to be pretty deep in to actually

00:44:33.940 | know a lot about the company.

00:44:35.580 | And then you have to know they're going to raise again.

00:44:37.820 | So I think that's going to happen pretty unusual--

00:44:40.900 | it's not going to be common.

00:44:43.340 | Right.

00:44:43.900 | I know it's not going to be common.

00:44:45.060 | It's just more like a thought exercise

00:44:47.060 | in terms of how an open-ended venture fund works.

00:44:50.900 | Because let's say I have a friend who works at Databricks.

00:44:54.300 | They're based in San Francisco.

00:44:55.660 | I play softball with them.

00:44:56.780 | And I'm like, ah.

00:44:57.540 | And he's like, ah, Sam, the business is doing great.

00:45:00.540 | And we're probably going to raise a new round of funding.

00:45:02.940 | That's just hanging out on the softball field.

00:45:04.940 | Oh, really?

00:45:05.860 | OK, you're going to raise new-- and the business is going great.

00:45:08.500 | It's a private company.

00:45:09.860 | He doesn't really know exactly.

00:45:11.140 | But it's like, OK, pretty good.

00:45:12.540 | Oh.

00:45:13.340 | Oh, and Fundrise Innovation Fund invests in Databricks.

00:45:16.740 | Maybe I should invest in the fund,

00:45:19.260 | because I can't directly invest in Databricks.

00:45:22.340 | Yeah, or there's an article in the information

00:45:25.260 | that Databricks may raise another round.

00:45:28.500 | And you look at it, and you're like, hmm,

00:45:30.780 | I wonder what price they're going to raise.

00:45:32.940 | And in the article, they say, we're

00:45:34.580 | not going to raise a discount.

00:45:37.020 | So yeah, this is like-- I think you're asking somebody

00:45:42.180 | almost something very narrow in a way, because I think that's--

00:45:45.580 | again, I just don't think that's a systematic dynamic.

00:45:49.740 | I think it's much more about, OK,

00:45:54.020 | I think that it's hard to reprice Inspectify.

00:45:57.700 | Let's say I-- I know Inspectify is-- let's say,

00:46:01.860 | in theory, they're killing it.

00:46:03.260 | They're doing really well.

00:46:04.420 | And I should talk about just one minute

00:46:06.500 | why I think Inspectify is better than you might think,

00:46:11.060 | even though I think what you said was good.

00:46:13.180 | But if I knew their growing revenue and the growing revenue

00:46:15.680 | but haven't raised a round, it's harder for us

00:46:18.860 | to actually strike the naff.

00:46:21.420 | Or if I knew that they were-- this is a company.

00:46:24.420 | Maybe they're down for six months.

00:46:27.300 | It doesn't mean they won't be-- they won't revert to the mean

00:46:29.740 | and catch back up.

00:46:30.500 | That happened to us in 2020.

00:46:32.380 | Our fundraising and our growth slowed during the pandemic.

00:46:37.900 | And then it reverted back to the mean.

00:46:39.940 | So it's really hard to price these companies.

00:46:42.780 | It's really difficult. The hope is that once you have more

00:46:46.860 | and more companies-- and we have a decent number already--

00:46:51.220 | it's hard to play inside those intervals.

00:46:53.860 | I think it's challenging.

00:46:55.900 | Got it.

00:46:56.780 | I mean, it is almost kind of like a belief play,

00:47:01.340 | a macro play, where do you believe

00:47:03.920 | these technologies and these categories

00:47:05.740 | are going to revolutionize and change the future and grow?

00:47:08.820 | And if you do, you need to take--

00:47:11.780 | you can take a fund approach where the fund invests

00:47:14.380 | in multiple companies.

00:47:15.860 | Or you can take an individual angel or direct private

00:47:18.820 | investment approach, which I don't really recommend.

00:47:21.180 | Because you don't have any edge as an individual, especially

00:47:23.980 | as a common individual.

00:47:25.140 | Super hard to get access to these companies.

00:47:26.980 | Yeah.

00:47:27.480 | And so I'm just always thinking about it

00:47:30.180 | as a strategic investor in the way I think about it.

00:47:32.980 | Because I always try to think about the future.

00:47:35.340 | And so yeah, if the rising tide lifts all boats

00:47:37.920 | in these specific five categories, for example,

00:47:40.620 | then obviously the innovation fund will probably ride with it.

00:47:45.380 | There's no guarantees on returns,

00:47:46.940 | but it'll ride with it.

00:47:48.820 | So I'm just trying to think from an investor,

00:47:51.140 | potential investor's point of view, how to think about it.

00:47:54.100 | You've got the macro.

00:47:55.180 | You've got technology.

00:47:57.020 | And you're able to look at the existing portfolio.

00:47:59.740 | And as we talk here today, it sounds

00:48:02.100 | like there are a lot more opportunities on the horizon.

00:48:04.620 | And as the fund raises more capital,

00:48:07.900 | you will reinvest that capital in those specific

00:48:10.380 | opportunities.

00:48:11.780 | Yeah.

00:48:12.300 | Yeah, I mean, I have a broad view--

00:48:14.740 | and this is like runs counter to most people

00:48:16.940 | in the investment business-- is that the macro is more

00:48:19.220 | important than you as a manager.

00:48:24.500 | And that's like-- because everybody sells their sells.

00:48:28.060 | Sure, everybody's talking their books.

00:48:30.020 | Everybody's saying, I'm such a great manager.

00:48:32.780 | But all those venture people who were a genius in 2019

00:48:36.500 | didn't look so smart in 2022, right?

00:48:38.500 | So I mean, there's obviously skill.

00:48:44.300 | You have to get access.

00:48:45.300 | You have to be able to pick good companies.

00:48:47.540 | But I think that picking the good companies

00:48:50.900 | is not as hard as you might think

00:48:53.220 | if you are picking the best--

00:48:56.020 | Right.

00:48:57.380 | Go look at the top 20 companies.

00:48:59.380 | It seems like really it's access.

00:49:00.860 | It's like the rich get richer.

00:49:04.260 | The alumni of the private college institutions

00:49:08.300 | and their legacy admissions, they

00:49:09.740 | get in easier by 5 to 8x.

00:49:12.740 | So it is access, folks.

00:49:14.820 | And this is kind of the reality of the world.

00:49:17.340 | I know the venture world relatively well

00:49:19.460 | because I have a lot of friends in the venture world

00:49:21.580 | because I'm here in San Francisco, Kleiner,

00:49:23.540 | and I have other parents who are in the venture world.

00:49:26.300 | And it's really about access.

00:49:28.940 | Access, access, and man, I went to this holiday party

00:49:33.580 | at one of the top venture funds.

00:49:35.980 | So many other VCs from other competing funds

00:49:39.780 | were there because it's all about, OK, I'm

00:49:41.940 | going to invest in Series A. And I

00:49:43.660 | know someone at another fund who's

00:49:45.220 | going to support the Series B, and then Series C,

00:49:47.340 | and then there's IPO.

00:49:49.260 | So relationships and access, it truly

00:49:54.180 | is more important because we already know, or a lot of us

00:49:57.220 | know, which are the top companies that you

00:49:59.700 | want to gain access to.

00:50:01.340 | Right.

00:50:01.860 | And so there's a bunch of implications of that.

00:50:05.540 | And you didn't say this part, but then there's

00:50:07.460 | this regulatory barrier.

00:50:08.580 | Normal people can't even invest in it.

00:50:10.660 | They're not allowed to.

00:50:12.460 | The companies have to be public.

00:50:14.260 | So you have two different barriers.

00:50:17.340 | And we created a way to surmount the first one, which

00:50:22.140 | is a regulatory barrier, and the second one

00:50:25.260 | was a human barrier.

00:50:28.660 | And we've been able to surmount that so far.

00:50:34.740 | And I think we will continue to-- I can see a line of sight

00:50:38.740 | to I feel like we're confident about the, let's say,

00:50:42.380 | the next short period, like three months, six months,

00:50:45.300 | a year.

00:50:45.800 | Obviously, it's hard to say what two years are

00:50:47.720 | going to look like from now.

00:50:50.260 | But the thing about venture is that winning

00:50:54.220 | is the best strategy because it causes more winning.

00:50:58.780 | If you have the best companies and we

00:51:00.960 | have a really supportive investor base who's like--

00:51:06.300 | we bring 2 million users to the table.

00:51:10.060 | Like when Inspectify-- when we sent out our email

00:51:13.740 | to our investors saying, hey, we invested in Inspectify,

00:51:18.340 | Inspectify's web traffic doubled.

00:51:20.860 | Sure.

00:51:21.460 | So very hugely value added.

00:51:23.300 | They got 100 sales leads, which in B2B business is a lot.

00:51:31.580 | And so if we can get more investors,

00:51:35.320 | we're more valuable to the companies we invest in.

00:51:39.220 | And so that's like our long-term play

00:51:41.620 | is that basically we bring something

00:51:44.740 | to the table that's different than what-- Sequoia

00:51:47.540 | brings all sorts of things to the table.

00:51:50.220 | They don't bring 2 million investors.

00:51:52.340 | Right.

00:51:53.460 | That's what I think is our kind of like-- so that's like,

00:51:56.620 | how do we keep scaling and maintain quality?

00:51:59.020 | Is there's a potential network effect.

00:52:01.660 | Right.

00:52:02.540 | No, that's absolutely true because it's

00:52:04.780 | so hard to gain access.

00:52:06.340 | The company will say, what can you

00:52:08.540 | do besides bringing capital?

00:52:10.020 | Because capital is kind of a commodity, right?

00:52:12.700 | Everybody-- there are a lot of people with a lot of money

00:52:14.540 | and a lot of institutions with a lot of money.

00:52:17.020 | So what is the value add you can provide?

00:52:19.060 | And that's actually something that I've

00:52:20.720 | been thinking about as well with Financial Samurai

00:52:23.620 | and investing in private companies.

00:52:25.060 | Like, well, my value add is I have a platform that I

00:52:27.220 | can help market your product.

00:52:29.100 | And so that is something I've thought about.

00:52:30.940 | But as a stay-at-home dad raising two young kids,

00:52:34.140 | there's a lot going on already.

00:52:37.420 | So in terms of investing in the fund

00:52:40.180 | and then gaining liquidity from the fund,

00:52:43.620 | it's a time horizon of five plus years, maybe longer.

00:52:46.820 | Whenever I invest in venture and venture debt,

00:52:50.620 | I think about a 10-year horizon.

00:52:53.020 | And I hope I don't die before the 10 years, obviously.

00:52:55.340 | But if I do, then my heirs will be

00:52:57.740 | able to get the distributions.

00:52:59.380 | So how should investors think about liquidity,

00:53:04.020 | getting exits from the fund, as well as also,

00:53:08.860 | what would you say is the recommended percentage

00:53:12.380 | of one's investable assets they should invest

00:53:16.060 | in private growth VC funds?

00:53:19.700 | Right.

00:53:20.200 | Well, let me do the first one.

00:53:22.340 | The second one is a very hard one.

00:53:23.980 | It's personalized circumstances.

00:53:28.420 | So we created something new, which is basically a venture

00:53:32.580 | fund that the public can invest in.

00:53:34.620 | And the underlying assets, which are companies like Serviceite

00:53:38.060 | and your Databricks, which are not liquid,

00:53:42.300 | we can sell our shares on the secondary market.

00:53:46.420 | But it's going to be hard to do, because it's very inefficient

00:53:50.340 | and maybe not get very good pricing,

00:53:52.700 | if you can get any pricing.

00:53:54.620 | Because usually when you want liquidity,

00:53:58.260 | there's no liquidity to get.

00:54:01.060 | That's the way liquidity works.

00:54:02.620 | It's bimodal.

00:54:03.940 | So we believe we have to hold a chunk of the fund

00:54:09.700 | in public liquid assets.

00:54:13.420 | That's why what we have done so far

00:54:17.420 | is we've been holding cash in money markets, which

00:54:22.340 | is not so bad, and in public tech debt, bonds.

00:54:28.500 | We bought a lot of-- the bond market

00:54:30.740 | was sort of fractured last year.

00:54:33.340 | And so we bought $30-plus million

00:54:36.180 | of fractured or broken bond offerings.

00:54:42.100 | So we got some really good pricing.

00:54:44.740 | But it's not really where maybe we'll

00:54:47.020 | get single digit yields or something.

00:54:50.180 | But it's not really what we're-- it's there for liquidity,

00:54:54.540 | because investors expect things to be liquid,

00:54:57.600 | even if it's a strategy.

00:55:00.020 | How long does it take Inspectify to become--

00:55:03.460 | to fulfill its potential?

00:55:05.900 | That's a long time.

00:55:07.980 | And most investors, they want to get liquid on their timeline,

00:55:13.020 | not on the company's timeline.

00:55:14.740 | And so we had to create this hybrid vehicle.

00:55:17.740 | And that's how we've done it.

00:55:20.900 | And so that answers my question on, oh,

00:55:23.980 | why are there publicly holdings in the fund?

00:55:27.800 | So the primary reason is to provide liquidity

00:55:31.800 | when people want it?

00:55:33.600 | Yeah, and also, if there's a $25 million investment to be had,

00:55:37.780 | you can write that check.

00:55:39.880 | Right.

00:55:40.900 | Right, right, right, right.

00:55:41.960 | Got it.

00:55:42.520 | That's interesting, because traditional VCs,

00:55:44.680 | they don't do that.

00:55:45.520 | They don't have that liquidity.

00:55:47.080 | You wait 5 to 10 years.

00:55:48.800 | So exactly when is the earliest someone could get liquidity?

00:55:52.880 | Because if I'm in--

00:55:54.560 | so it's quarterly.

00:55:55.440 | Every quarter, yeah.

00:55:56.960 | And how much of that liquidity?

00:55:58.840 | Let's say I invest $100 grand.

00:56:01.400 | Yeah, we hold enough liquidity that I'm not worried

00:56:06.320 | about people needing to get liquid.

00:56:08.800 | It's similar to the real estate, where we have

00:56:12.080 | quarterly liquidity available.

00:56:13.520 | It's a little different, because the tech fund can not

00:56:20.640 | have liquidity, where the real estate funds are required

00:56:23.000 | to have 5% liquidity every quarter.

00:56:25.440 | But the real estate is much more liquid.

00:56:27.100 | You can always sell a building.

00:56:29.360 | I can't force Databricks to go public.

00:56:31.440 | Sure.

00:56:32.240 | So it's a little less liquid than real estate.

00:56:35.440 | But we manage liquidity by having, essentially,

00:56:40.000 | like a portfolio that includes liquid public assets.

00:56:45.800 | So can we just talk about an example?

00:56:47.560 | Let's say I invest $100,000 in the fund.

00:56:50.080 | And for some reason, I need liquidity.

00:56:53.120 | How much of that $100,000 can I get back?

00:56:57.040 | Yeah, you would hit--

00:56:58.320 | you go into our app, hit Redemption.

00:57:01.160 | And in the quarter, we pay $100,000.

00:57:05.440 | Oh, 100%.

00:57:07.080 | Yeah.

00:57:08.040 | So that's a good option to have for people, just in case

00:57:13.920 | they need liquidity.

00:57:15.160 | Definitely, for folks listening, don't

00:57:17.240 | invest in private funds with five-plus-year time horizons

00:57:22.160 | if you need the liquidity within five years.

00:57:24.600 | You need to properly asset allocation

00:57:27.000 | your funds accordingly.

00:57:29.200 | Because sometimes when you need liquidity, as Ben said,

00:57:32.280 | you might not get liquidity, or you

00:57:33.840 | might have to sell at a larger discount than you desire.

00:57:37.760 | So there is a situation, Ben, where let's say--

00:57:40.800 | I don't know-- there's another huge financial crisis,

00:57:43.920 | and people just need liquidity.

00:57:47.200 | Being able to pay back 100% liquidity from all investors

00:57:49.720 | is going to be impossible, because not the entire fund is

00:57:52.880 | liquid.

00:57:53.880 | Yeah.

00:57:54.400 | Yeah.

00:57:54.900 | Well, so two points.

00:57:56.440 | One, 100% of people wanting liquidity at the same time

00:58:00.800 | is not going to happen.

00:58:02.400 | I mean, you have is like our normal liquidity demand.

00:58:06.120 | Normally, there's some number of people who want liquidity.

00:58:10.360 | Currently on the fund, it's infinitesimal.

00:58:14.040 | On other funds that are more mature,

00:58:16.600 | we've been doing this for 10 years.

00:58:19.720 | It's pretty statistically predictable for us,

00:58:22.720 | because it's across hundreds of thousands of people.

00:58:26.840 | So it's like-- and it's highly correlated to the S&P 500,

00:58:31.920 | actually.

00:58:33.040 | So it's not that hard, actually, to manage against it.

00:58:40.720 | But with the venture-- but with the real estate, again,

00:58:42.960 | with the real estate, we can sell real estate.

00:58:45.520 | We do sell real estate.

00:58:47.880 | With tech, it's a slightly different fund structure,

00:58:50.960 | because the underlying asset is the most--

00:58:55.480 | arguably one of the most illiquid assets out there.

00:58:58.600 | Right.

00:58:59.440 | So again, folks, if you invest in a venture capital

00:59:02.680 | fund that's private companies, you really

00:59:05.200 | have to invest with a five-plus-year horizon.

00:59:08.200 | Be consistent with the goal of the fund,

00:59:11.880 | and allocate illiquid capital to illiquid investments,

00:59:15.520 | and then vice versa.

00:59:16.920 | We want to talk about our second question, was what percentage

00:59:21.080 | do you think is a wise percentage to invest

00:59:24.640 | in private companies' private funds?

00:59:28.040 | I have my own views, but I'd love to hear yours.

00:59:30.040 | I feel like my chief appliance officer would go crazy

00:59:34.480 | if I was answering that question.

00:59:36.840 | I could answer it like the sale of-- like institutions

00:59:40.280 | hold 20% to 30% of their assets illiquid assets.

00:59:43.400 | I think it's the wealthier you are,

00:59:47.560 | the more liquid you can be.

00:59:49.440 | Right.

00:59:50.160 | And so it's very circumstantial.

00:59:55.760 | We have people redeeming every day from our site,

00:59:59.000 | and we always ask them, why are you redeeming?

01:00:01.480 | And the most common reasons are buying a house.

01:00:04.720 | There's life reasons.

01:00:06.880 | Sure.

01:00:07.720 | And so yeah, there's no objective answer to that.

01:00:11.840 | Got it.

01:00:12.340 | And that makes sense.

01:00:13.520 | If you look at the Yale Endowment Fund,

01:00:15.720 | it's something like $30 plus billion.

01:00:18.480 | Something like 70%, 80% of its asset allocation

01:00:23.080 | is in private or illiquid funds or investments.

01:00:28.480 | And so folks, the reason why the wealthier you are,

01:00:32.320 | the more illiquid you can be, is because the remaining smaller

01:00:35.060 | percentage of your liquid net worth

01:00:37.720 | is still a large, absolute dollar amount.

01:00:41.160 | So if you are worth $10 million and you put 80%

01:00:46.000 | in illiquid funds, well, you still

01:00:48.040 | have $2 million of accessible liquidity.

01:00:50.800 | And of course, it depends on your cash flow.

01:00:52.840 | Personally, I like to invest no more than 20% of my net worth

01:00:57.760 | in private companies and private funds

01:01:00.000 | because, well, I don't have tens and tens of millions of dollars,

01:01:04.240 | and that's just my capital allocation.

01:01:05.920 | So everybody has to figure out on their own,

01:01:08.000 | but also be really consistent with their liquidity goals

01:01:11.520 | and understand your cash flow and understand your future

01:01:14.480 | and what you need.

01:01:16.080 | All right, Ben.

01:01:16.760 | So is there anything else we should talk about regarding

01:01:19.120 | the fund and what the future holds for the fund?

01:01:21.520 | What is the ideal scenario for the fund in the next one

01:01:26.080 | to two years in your mind?

01:01:27.600 | Yeah, I mean, I can't believe how lucky we are

01:01:31.440 | because the AI revolution is maybe

01:01:34.960 | the biggest technological change in our lifetime.

01:01:38.880 | I mean, going from creating the internet,

01:01:43.280 | created tons of companies, tons of value,

01:01:46.320 | and creating mobile, mobile didn't, cloud did.

01:01:48.720 | So this is like-- Goldman Sachs came out

01:01:52.160 | saying they thought it could double GDP growth.

01:01:55.280 | And they measured-- they said that they

01:01:56.920 | could have 500 times the productivity gains

01:02:00.560 | than a personal computer did.

01:02:03.160 | So the amount of value created and captured here

01:02:07.120 | is going to be astronomical.

01:02:09.520 | And that has nothing to do with us.

01:02:11.040 | We just happened on the scene when that's happening.

01:02:15.680 | And our job is to basically just to get in the middle of that

01:02:20.880 | as much as possible because that's what's happening today.

01:02:24.280 | And that's the opportunity.

01:02:27.040 | It's just unbelievable.

01:02:29.160 | Right.

01:02:30.040 | To focus-- well, first, identify investment trends

01:02:34.160 | and get on that rocket ship and not really care

01:02:36.760 | where's your seat, right?

01:02:37.840 | That famous quote, just identify that rocket ship and get on.

01:02:41.000 | Because if you can focus on the investment trends

01:02:43.080 | and focus on the big picture, the macro,

01:02:46.040 | a lot of the other stuff will take care of itself.

01:02:48.920 | And I know there's going to be some blowups here and there

01:02:51.800 | because there always are in new riskier investments.

01:02:56.800 | But if you can focus on that trend,

01:02:59.040 | I think good things will happen.

01:03:01.360 | So how many investments would you

01:03:04.920 | think would be ideal for the fund?

01:03:06.760 | Is there a cap on the limit?

01:03:09.400 | Is there a cap on the size of the fund?

01:03:12.640 | The fund is a registered--

01:03:14.360 | or sorry, regulated investment corporation,

01:03:16.920 | which basically has certain diversification parameters.

01:03:22.080 | So for example, we can't have more than 25% of the fund

01:03:25.480 | in one company.

01:03:26.880 | We have approximately 25% in one company.

01:03:30.640 | And so there's a--

01:03:32.760 | I don't need to get into the details,

01:03:34.260 | but basically you're not supposed to have more than--

01:03:38.000 | well, I'll do this because I'm a detailed person.

01:03:40.720 | But half the company, half of the portfolio

01:03:44.040 | can be concentrated, and then the other half

01:03:47.000 | has to be diversified.

01:03:48.240 | What does concentrated mean?

01:03:49.840 | Concentrated means technically not more than half.

01:03:54.720 | So half has to be in at least two companies.

01:03:58.360 | So a quarter, right?

01:03:59.640 | Yeah.

01:04:00.140 | Quarter max.

01:04:00.840 | So that's fairly concentrated.

01:04:02.080 | The other half, no one company can be more than 5%

01:04:05.560 | of the fund.

01:04:07.000 | Interesting.

01:04:07.500 | So you end up with 22 companies is the kind of requirement

01:04:13.920 | from a--

01:04:14.480 | Minimum?

01:04:15.320 | From a RIC, a regulated investment corporation

01:04:17.880 | sort of structure.

01:04:19.080 | And what that lets you do is the fund then is tax free.

01:04:24.000 | There's no corporate tax at the fund level if you're a RIC.

01:04:28.880 | So that's why you want to conform to those regulations.

01:04:32.640 | Tax free.

01:04:33.140 | So that's like the minimum.

01:04:35.160 | Can you talk about what that means to the consumer?

01:04:37.800 | Because what do you mean the fund has to pay taxes?

01:04:42.120 | Fund is tax-- no, the fund is-- there's no tax at the fund

01:04:45.760 | level if you're a regulated investment corporation,

01:04:48.400 | if you're a RIC.

01:04:49.640 | So it's a pass-through entity.

01:04:52.360 | So why would a fund ever not want to follow and be a RIC?

01:04:56.360 | Most venture funds are not RICs.

01:04:59.600 | Most venture funds are LLCs.

01:05:02.120 | I mean, now you're getting deep into insurance law and tax.

01:05:09.560 | Yeah, let's not get into that.

01:05:11.240 | But interesting, interesting.

01:05:12.960 | OK, so 22.

01:05:14.120 | So it sounds like you'll have at least 22.

01:05:16.760 | But what if there's a situation-- because eventually,

01:05:19.800 | it can get so big that, actually, it

01:05:22.160 | could be good from a risk perspective.

01:05:24.080 | But could you envision the fund having 65 investments?

01:05:28.840 | Or is that just getting out of control there?

01:05:31.840 | It's hard to say at the moment.

01:05:34.160 | Because to some extent, it doesn't really

01:05:36.660 | matter the number of investments.

01:05:38.000 | It depends on the dollar size.

01:05:41.300 | So we've made some small investments.

01:05:43.560 | And the reason I make a small investment

01:05:45.280 | is I can get on the cap table and get to know the company.

01:05:49.280 | And the more you know the company,

01:05:51.440 | the more conviction you can get.

01:05:52.960 | And then you can say, oh, this is a great company,

01:05:55.040 | and I want to invest more.

01:05:56.720 | Right.

01:05:57.240 | So that's a whole different strategy.

01:05:58.840 | Your foot in the door.

01:05:59.840 | Yeah, it's not the first check that matters.

01:06:03.280 | It's the size of the check that matters.

01:06:06.040 | Mm, yeah.

01:06:08.680 | Well, it sounds great.

01:06:09.800 | It sounds like there's a great opportunity.

01:06:12.280 | It definitely seems like all these technologies

01:06:14.440 | are the wave of the future.

01:06:16.240 | Ben, for those who are interested in investing

01:06:18.640 | in the Fundrise Innovation Fund, what

01:06:21.240 | is the minimum required to invest in the fund?

01:06:24.280 | And what are the fees?

01:06:26.200 | So the minimum is $10, which is our mission to make it,

01:06:31.880 | to lower the barriers.

01:06:33.680 | And the fees are much less than a normal venture fund.

01:06:37.040 | So a normal venture fund charges $2.20.

01:06:39.880 | It's a 2% annual asset management fee.

01:06:42.200 | And then a 20% carried interest for $20.

01:06:44.480 | And then a 20% carried interest for 20% of the profits.

01:06:47.960 | Some charge more than that.

01:06:49.520 | Some charge-- I think Benchmark charges 30% of the profits.

01:06:53.000 | We have no carried interest.

01:06:55.320 | So we just charge a 1.85% annual asset management fee.

01:06:59.240 | So less than venture charges for annual asset management

01:07:03.040 | and no carried interest, zero profit participation.

01:07:07.480 | Right.

01:07:08.400 | Now, that's good, because I'm definitely

01:07:10.200 | invested in a fund that is-- I think it's 3-plus percent

01:07:13.760 | and 30% carried interest.

01:07:16.040 | And it's one of the top funds out there.

01:07:17.760 | So I was like, well, again, it's about access.

01:07:21.080 | All right, well, you heard it here, folks.

01:07:22.880 | $10 to get into-- to start investing

01:07:25.360 | in these technologies and companies.

01:07:28.160 | That is pretty revolutionary, folks,

01:07:30.160 | because as a credit investor, a lot of these funds,

01:07:33.880 | you have to invest a minimum $200,000, $250,000, at least

01:07:38.440 | $100,000 in the friends and family rounds that I've seen.

01:07:42.400 | And a lot of times, there's just no supply.

01:07:45.000 | You just can't get in.

01:07:46.760 | So thank you for sharing that information

01:07:49.020 | and democratizing that access to venture capital,

01:07:51.760 | because I don't know if I've heard

01:07:54.080 | of any other $10 investment minimum out there.

01:07:59.600 | So sounds great.

01:08:01.160 | All right, Ben, well, it was great chatting with you

01:08:03.320 | for the past hour plus.

01:08:05.200 | We will speak again, hopefully at the end of the year

01:08:07.760 | or in the new year, to talk about real estate, your views,

01:08:11.040 | and whether they've changed at all.

01:08:12.760 | You can listen to a previous episode we had.

01:08:15.240 | And also, thank you, Fundrise, for being a supporter

01:08:18.000 | and sponsor of Financial Samurai all these years.

01:08:20.240 | I really appreciate it.

01:08:21.720 | And until we speak again--

01:08:23.280 | Yeah, onward.

01:08:24.680 | --onward.

01:08:26.080 | Well, everyone, I hope you enjoyed today's podcast episode

01:08:29.000 | with Fundrise co-founder and CEO Ben Miller.

01:08:32.200 | If you would like to learn more about Fundrise

01:08:34.280 | and the Innovation Fund, please visit

01:08:36.480 | financialsamurai.com/fundrise, F-U-N-D-R-I-S-E.

01:08:43.760 | Take care.

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