Fundrise is making a giant entry into a venture capital market to generate a new $1 billion growth equity fund to invest in late-stage tech startups.
The company, which permits everyone to invest in real estate with just $10, announced the move today.
According to the company, the new fund will be evergreen, have an indefinite life, and a structure that offers investors the opportunity to come and go as they wish.
Fundrise was established in 2012 by Ben Miller to offer retail investors huge access to private real estate markets. Now, the firm has become one of the 20 most popular investors by size.
Miller provides insight into his beginning. He said, “When I started Fundrise, all the big real estate players told us we couldn’t do it, that it’s laughable [and we] shouldn’t do it.”
Fundrise and Miller’s method of utilizing tech to reduce real estate investment costs tend to have paid off despite the earlier pushback.
The company currently manages over $2.8 billion in real estate equity value for 300,000 active investors on its platform. The firm has been growing quickly enough, making Miller expect a top-10 spot climb by size in private real estate in the next two years.
Miller believes that if everything goes according to the arrangement, this fresh growth equity fund will mirror Fundrise’s present real estate offering, permitting anyone to invest as low as $10 each.
Meanwhile, all the fund’s investment decisions will be approved by a 3-person investment committee consisting of Miller, Fundrise’s chief operating officer, and strategy officer.
Miller also disclosed that the firm aims to raise its $1 billion target from existing customers. The fund would cost investors a flat 1.85% fee, less than most traditional VCs’ standard “2 and 20” fee.
This low fee of Fundrise’s offerings comes from the firm’s use of technology to automate and streamline processes like shareholder record-keeping.
Now that the company has shown it can implement the low-fee structure for real estate investment while offering great returns, time would tell if it could more broadly do the same for venture capital.
For Miller, “The approach we’re going to try to take is not to do what the traditional venture industry does, which is [to] hire a bunch of salespeople and analysts that spend their time doing sales and meeting and trying to convince people to take their money. That’s the old-fashioned way to do business. That’s how IBM used to do business 50 years ago, but not how any SaaS company does business anymore.”
Miller also believes that launching the fund now is good timing because several startups need capital as venture capital deal makings have reduced significantly amidst economic downturn fears.