Fundrise Innovation Fund Review: Invest in Pre-IPO Startups

This Fundrise Innovation Fund review was recently updated to highlight fund holdings as of the September 30th, 2024 SEC filing disclosure. 

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The Fundrise Innovation Fund* is a multistage venture capital fund available to all U.S.-based investors. Owning the fund gives investors access to pre-IPO startups that would be otherwise inaccessible. 

Venture capital is one of the best-performing asset classes over the last 50 years, but it has been out of reach for most individual investors. 

Startups are staying private longer today compared to the early days of Amazon and Google. So venture capitalists and their wealthy customers enjoy the explosive gains of early startups while retail investors have to wait until they go public. 

Most high-growth phase gains are already baked in by the IPO.

Times are changing. 

Fundrise, a company that has already disrupted the real estate investing world, now allows non-accredited retail investors to own fast-growing startups before their IPOs.

Fundrise announced the launch of its first-of-a-kind venture capital fund in July 2022. This review comes one year later when the fund is on the verge of expanding its investments and investor base. 

In this Fundrise Innovation Fund review, I’ll provide an overview, answer frequently asked questions, track the fund’s holdings, and update this page as fund and holdings evolve. 

As IPO investors, we want to own exciting startups earlier in the growth phase and into the IPO to maximize investment returns. The Fundrise Innovation Fund gives all U.S.-based investors that opportunity.

* Please note: This is a testimonial in partnership with Fundrise. We earn a commission from partner links on AccessIPOs.com. All opinions are my own.

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What is Fundrise?

Fundrise is a Washington, D.C.-based crowdfunding investing platform, first known for giving non-accredited investors access to diversified high-quality commercial real estate portfolios previously unavailable as an asset class for retail investors.  

Its non-traded eREITs operate more efficiently than traditional REITs and are not subject to stock market fluctuations.

Since 2013, Fundrise and its investor base have grown to be one of the largest real estate owners in the country. As of mid-2023, Fundrise has nearly 400,000 active investors and a $7 billion investment portfolio. 

With the announcement of the Fundrise Innovation Fund, the company declared it would expand to be an alternative asset platform instead of only real estate.

One of the more unique qualities of the company is it is investor owned. Fundrise has raised funds from its investors through the Fundrise iPO instead of the traditional venture capital route. 

The company qualifies investment funds with the SEC and offers access to all U.S.-based investors. The minimum to start investing in Fundrise eREITs or the Innovation Fund is only $10. 

I’ve invested more than $25,000 in Fundrise eREITs and the Innovation Fund since 2017. You can find my Fundrise returns and a Fundrise review here. 

You can find screenshots of my Fundrise Innovation Fund account below. 

What is the Fundrise Innovation Fund

The Fundrise Innovation Fund is an alternative asset fund giving non-accredited investors access to private companies. 

Traditionally, venture capital investing is reserved for the ultra-wealthy. Non-accredited investors, and even most accredited investors, could not invest in venture capital because they cannot afford the high minimum investments to invest in a typical venture capital fund. 

With the Innovation Fund, Fundrise has finally unlocked venture capital as an asset class for non-accredited investors by qualifying the investment funds with the SEC.

The fund is primarily designed to invest in multistage pre-IPO startups, but managers have also invested some cash into corporate debt while they wait for better private valuations. The Fund may also invest in public companies. 

The Fundrise Innovation Fund is different than traditional venture capital funds in two primary ways.

First, the Innovation Fund is a publicly registered investment company available to any U.S. resident regardless of net worth. The SEC has qualified the investment. You can find the prospectus here. The fund can raise up to $1 billion. 

Traditional venture capital funds use SEC Regulation D, which is exclusive to high-net-worth investors. 

Second, the Innovation Fund is a low-fee investment with a single fixed asset-management fee. Institutional venture capital funds charge investors both a fixed annual asset management fee and a carried interest fee (a fee on profits) of 20% or more.

The Fundrise Innovation Fund is the first of its kind, but shortly after its inception, a rival fund called the ARK Venture Fund (review) became available. The ARK Venture Fund has made more investments to date and is available via SoFi Invest.

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Fundrise Innovation Fund Review

Access IPOs conducted this comprehensive Fundrise Innovation Fund review because we believe the fund is an excellent opportunity to own startups earlier in their growth cycles. 

Fundrise has been a trusted investment platform for the author since 2017, and I am confident in management’s capability to earn returns for investors over the long term. 

Instead of waiting for the IPOs, investors can now participate in gains when the companies are growing rapidly. When companies conduct their IPOs, investors will continue to benefit through the public offering as the Fund implements a long-term buy-and-hold strategy that includes private and public stages.

Should you Invest?

The Fundrise Innovation Fund and the ARK Venture Fund via Titan are the only investment vehicles for non-accredited investors to access pre-IPO startups. Accredited investors can explore direct pre-IPO investing on other platforms. 

But for the non-accredited, this is the only game. 

Accredited investors should not be deterred from investing. The Fund is still the easiest way to gain diversified exposure to pre-IPO startups. 

Owning the most innovative startups earlier gives retail investors a leg up when the IPO arrives. Instead of trying to get IPO access from brokers and underwriters, venture capital fund investors are already owners. 

Depending on the investment stage, individual holdings in venture capital funds can achieve much higher returns when access to the right companies is available.

For example, if the venture capital fund can invest in a company at a $500 million valuation and the company IPOs at $5 billion a few years later, that’s a 10x return on investment (ROI).

IPO investing alone will never provide such returns. 

Moreover, private startup valuations are not always in line with public valuations. That presents an opportunity for venture capital investors to find bargains from private mispricing since they do not trade on exchanges.

Reduced private liquidity can also present opportunities to find motivated sellers, which was the case with ServiceTitan.  

Venture capital is a way to diversify your overall portfolio and achieve gains above what you can get from a market index fund.

However, investors must accept more risk and reduced liquidity. 

Investment Strategy

Fundrise started the fund with the intent to create a diversified portfolio made up of private high-growth technology companies.

While traditional venture aims to own a smaller portfolio of 20 or more startups, hoping one will ‘hit big’, Fundrise is taking a different approach:

We believe that once private tech companies reach a certain stage, it is possible to identify a subset of several hundred that have strong underlying fundamentals. While not all of them will succeed, investing across a large portion of them (much like indexing the Nasdaq-100) is likely to produce superior returns over the long term.

The Fund is evergreen, meaning management can invest with a longer-term horizon, spanning various startup phases, and continue holding after the IPO.

The initial focus is on companies riding the tailwinds of extraordinary macroeconomic trends. Here’s an initial list of targeted sectors from the Fundrise website:

With the Fed Funds rate still at recent highs, a reverse in policy should be a catalyst for growth. 2022 saw tech stock prices tumble, but private valuations are not as fluid, so Fundrise believes there will be excellent opportunities to invest in the above sectors as market conditions evolve. 

Holdings Overview

The Fundrise Innovation Fund is investing in early-, mid-, and late-stage pre-IPO startups. It also invests in special purpose vehicles (SPV) that hold private companies, venture funds, and government securities. 

Participating investors will receive email updates from the fund when new holdings are added or removed from the fund. 

However, SEC filings reveal the fund holds more than what’s listed on the website or is disclosed in emails. 

SEC filings called Form N-CSRS: Certified Shareholder Report, Semi-Annual and Form NPORT-P Monthly Portfolio Investments Report on Form N-PORT (Public) shed light on the portfolio holdings. 

I’ve extracted the data and put into a table for easy consumption. Where applicable, I’ve listed the SPV with the associated holdings, and done some investigation to confirm which holding hold which startups. 

My research may be off, so please comment or contact me if you know or can figure out more than I can. 

Fundrise Innovation Fund Holdings

The following table contains the Fundrise Innovation Funds holdings as of September 30th, 2024. I’ve sourced this data from SEC filings. However, some of the SPV holdings are undisclosed, hidden from public view. 

I’ve done some sleuthing to figure it out. But let me know if you can help identify the holdings in the SPVs.

Please Note: I do not guarantee accuracy of this table. Refer to the sourced links and verify independently. 

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* HOF Capital AP Growth, LLC – This holding is unknown. A Reddit poster suggests this is OpenAI, and that is very possible. 

From the SEC filing:

HOF Capital AP Growth, LLC, through a related single purpose vehicle, holds an investment in a leading US-based AI and large language model provider leading defined as top 5 in capital raised as of the reporting date among North American based companies primarily focused on building and serving foundation models).

This holding was acquired in late December 2023. This is exactly when Elon’s xAI was raising substantial capital. HOF Capital’s website lists xAI as a featured portfolio holding. But digging deeper, I found HOF Capital also owns OpenAI, Anthropic, and Databricks, who also have LLM models. Could be any of the three. 

Read more about the fund’s holdings:

• Anduril
• Anthropic
• Canva
• Databricks
• OpenAI
• Ramp
• ServiceTitan
• Stripe

Public Debt

The Fundrise Innovation Fund held a significant amount of corporate debt of public tech companies. But as of September 30, 2024, the debt is no longer part of the portfolio.

Fundrise explained the investment in a June 2023 investor update. Read the update to understand the strategy.

Minimum Investment

Investors can begin investing in the Fund with a minimum of just $10. But $10 is not a meaningful investment.

If you are serious about earning returns from this fund and can’t afford much more than $10, consider setting up a recurring monthly deposit into the real estate assets and deposit more into the Innovation Fund when it is accepting new cash. 

There is no maximum investment ceiling. 

Fees

The Fundrise Innovation Fund has a flat annual management fee of 1.85%. That means for every $1,000 of invested assets, the fees will equal $18.50 per year.

Is there a Waitlist?

As of October 2024, there is no waitlist. The Fundrise Innovation Fund waitlist was lifted as of August 2023.

For the first year of the fund’s existence, new investors did not have the immediate chance to invest in the Innovation fund once they opened and funded a Fundrise account. 

That’s because the company wanted to make sure it had enough attractive investment opportunities to deploy capital. 

Now that the fund is more mature, the company has more opportunities to invest and park idle cash. However, it reserves the right to pause new investments if private opportunities become less attractive. 

Liquidity

Investors in the Fund should plan to stay invested for five or more years. You cannot liquidate your invested dollars at will. 

Pre-IPO venture capital investors are significantly less liquid than stocks. That makes it more challenging for the Fund to provide liquidity on demand. 

The Fund intends but is not obligated to conduct quarterly “repurchase offers” at the discretion of the Board of Directors. The Fund does not intend to create an exchange for investors to liquidate shares. 

There are currently zero penalties or costs associated with liquidating shares when the Innovation Fund conducts repurchase offers.

I expect liquidity to be more limited in the first years of the fund, but liquidity will improve as the fund matures. 

Notably, the Fund may hold securities of portfolio companies after the IPO. Owning some public companies in the portfolio will help increase liquidity.

The ARK Venture Fund holds public stocks for liquidity purposes, and we can assume the Fundrise Innovation Fund may use the same strategy to provide more liquidity in the future.

Prospectus

Read the Fundrise Innovation Fund Prospectus below. You can also find it here. Find all the latest documentation on the offering page. 

Tax Reporting

The Fundrise Innovation Fund intends to issue a 1099-DIV for each tax season. 1099-DIV are straightforward to report on your tax return and do not require professional intervention for most DIY filers. 

As the Fund matures, scenarios requiring more complex tax reporting are possible. But at this stage, the 1099-DIV is likely sufficient. 

Contact a tax professional with questions or concerns. 

Who Can Invest?

All U.S.-based investors aged 18 and older can invest in the Fundrise Innovation Fund.

International investors cannot invest. 

Dividends

The Fundrise Innovation Fund does not intend to pay dividends. The Fund is a growth investment unsuitable for creating passive income. 

Risks

There is no profit guarantee. Investors may lose some or all of their initial investment. 

The Fundrise Innovation Fund has no government backing or loss floor. 

Invest at your own risk and only invest money you can afford to lose. 

The Prospectus lists several additional risks that all investors should understand before investing. 

Please refer to the “Risk Factors” section of the Prospectus to understand the underlying risks, which include leverage risk, sector risk, and market risk, among several others. 

Investment Committee

Some investors have questioned the credentials of the Fundrise management to become venture capital investors without a specific background in such activities. 

It should be noted many wealthy individuals (e.g., sports stars and celebrities) become venture capitalists, and success is often a result of personal networks instead of financial aptitude.  

Fundrise believes former founders and leaders of tech companies make the best venture investors instead of MBAs and career investment bankers.

They have first-hand experience building, growing, and running technology companies and understand the challenges. The Fundrise executive team has spent decades building technology companies.

Furthermore, the company and its executives are well-connected in the startup world because of the technologies it deploys and through connections it made during the Silicon Valley Bank collapse when it offered bridge loans to various bank account holders to make payroll. 

The people making the investment decisions include the following Fundrise Executives:

• Benjamin S. Miller – Chief Executive Officer of Fundrise
• Brandon T. Jenkins – Chief Operating Officer of Fundrise
• Chris Brauckmuller – Chief Product Officer of Fundrise

Fundrise Innovation Fund vs. The ARK Venture Fund

The Fundrise Innovation Fund is one of two venture capital funds available to non-accredited investors. The other is the ARK Venture Fund, available SoFi Invest. 

Here is a side-by-side comparison:

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My Fundrise Account

I invested $2,000 immediately after Fundrise offered me an opportunity to contribute funds. Though the Fund was announced in July 2022, I could only commit funds in late December 2022.

Another brief investment window opened in late-July 2023, and I invested an additional $1,000.

My total investment to date is $3,000. This represents approximately 10% of my total Fundrise portfolio, which includes several eREITs.

I intend to continue investing $1,000 or more during upcoming investment windows.

Here are a few screenshots of my account as of July 2023.

Conclusion

The Fundrise Innovation Fund is a multistage venture capital fund that provides non-accredited retail investors in the U.S. with the opportunity to invest in pre-IPO startups.

Fundrise, known for disrupting real estate investing, has expanded into multiple alternative assets. Its business model is an end-to-end alternative investment platform that can accommodate other asset types.

The Fund aims to invest in private high-growth technology companies and offers a diversified approach to venture capital by intending to hold a larger portfolio of startups than traditional venture capital and making the Fund non-exclusive. 

It also includes investments in corporate debt to capitalize on potential opportunities while private valuations normalize.

The fund has a minimum investment of $10 and charges a flat annual management fee of 1.85%.

Investors should be aware of the risks, as there is no profit guarantee, and the investments are less liquid than traditional stocks.

Overall, the Fundrise Innovation Fund opens up venture capital opportunities to a broader range of investors, allowing them to own exciting startups early in their growth phase.

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Disclosure: This is a testimonial in partnership with Fundrise. We earn a commission from partner links on AccessIPOs.com. All opinions are my own. The author is long the Fundrise Innovation Fund.