(The following is an abbreviated transcription from a video I recorded. Please excuse any typos or errors.)
Today I am going to break down the Fundrise innovation fund – I”ll share what I like about it, my 2 biggest concerns, how risky of an investment this is and who should definitely NOT invest in it.
And then I’ll give you my verdict on if I am going to be investing in it.
I keep getting people asking me about this so I decided it was time to talk about it… so without any further delay, here are my thoughts on the Fundrise Innovation Fund.
Now before we get into all the details, we recorded our discussion that you can watch below….
But, if you would rather read the full transcription, you can do so here in this article!
What is Fundrise?
Fundrise for anybody who doesn’t know, is basically a crowdfunded real estate investment that I have been part of for probably four to five years now at this point (check out how fundrise compares to my prior rental property). So it’s a hundred percent passive investment, which is great.
How it works is basically you contribute money to a fund that they have established. And then, they have professional real estate investors who go out and buy apartment complexes and big commercial real estate. You then get a portion of the earnings that they make from that purchase with that investment. I’ve been doing this for four or five years. It’s been going very well for me. I really like it as an investment.
The Fundrise Innovation Fund
Fundrise recently rolled out investment program that they’re calling the Innovation Fund, where they’re doing something a little bit different, kind of moving out of the real estate space. And that’s what we’re going to be talking a little bit about here.
I’m going to read how they describe it here. Actually, I’ll just pull up this screen real quick. So, they say:
Investing in high growth private tech companies has proven to be one of the best performing investment strategies of the last 50 years. However, these investments have remained almost entirely inaccessible to individual investors, and we’re changing that. Aiming to give all investors the opportunity to invest in a portfolio of top tier private tech companies before they IPO.
What’s cool about this? Well, hang tight. Before I get into that, I’m going to talk just a little bit about what they’re actually investing in.
The 5 investing areas it invests in
These are a few of the different types of things that they’re investing in:
- So AI, artificial intelligence and machine learning – which clearly this is going to be a big part of our future over the next five or 10 years.
- Modern data infrastructure – I’m not sure exactly what that is.
- Development operat – And again, I don’t know exactly what that is either.
- Financial technology or FinTech – And so this is like any sort of financial technology as it implies. But any kind of companies in this direction of which fundrise is one of them, that’s a FinTech company.
- And then real estate, property technology. And I don’t know that world super well, so I don’t know exactly what that is, but these are the five areas that they are going to be primarily investing in according to what they say on their website. Okay, so let’s chat a little bit about what I like about what they’re doing. And the one thing that really stands out to me is this idea of we’re smaller investors, you and I, and we can now participate in what we previously couldn’t participate in. And this has been the story of investing. I mean, really over the last I 20, 25 years, it’s like everything has shifted.
It used to be 25 years ago, you couldn’t buy a stock without going to your stockbroker. And you had to hold a bunch of money in order to be able to do that (here’s how to start investing with little money). And this is so simple. Anyone can go online and with a few bucks, start making their first investment. So it’s just a completely different world than it used to be. And we’re seeing more and more of this.
Fundrise Innovation Fund, again, like what the original Fundrise has done is they’ve made it that you and I can start investing in real estate. We don’t have to buy an actual property. We don’t need to take a loan out for $200,000 or whatever to buy a rental unit. We can actually go over to them with 500 bucks and become real estate investors in a matter of a few minutes. And, I love that.
I love that they’re opening up the doors to more and more smaller investors to be able to do things. And the fact is, like, I’ve seen this over and over again.
What is an IPO?
So IPO if you’re not familiar, means initial public offering. And so what happens is you have a private company that’s growing, growing, growing, and they get to this point where they’re like, all right, we’re going to make our shares publicly available so that anyone can buy our shares. And in that process sometimes some shady stuff happens.
The people who owned before they went public, and I feel like I’ve just seen this a lot, end up making off like bandaids and then all the people who buy at that IPO end up losing a good bit. And so I’ve just seen this happen too many times. And not to mention like there’s so much money to be made in that pre IPO.
And that’s what is cool about Fundrise Innovative Fund, they’re opening up the door for us to be able to participate in that with them and to share in some of those profits that traditionally were only available to super high net worth investors and things like that. So all of that gets me excited about what this is.
My concerns that you should be aware of
Now I do have some concerns about the whole thing and one of the biggest one being that any fund, whether that’s a real estate fund, a mutual fund, or whatever they’re doing here in this tech fund, it’s only as good as the people managing it. Right? Because you can put random Joe Blow in charge of this this fund who doesn’t know anything about these tech companies. And he’s going to do a terrible job because he doesn’t understand it.
Trusting good management
So we’re betting on, we’re banking on, the fact that they’re going to have good managers in place who can do a good job picking good companies. Because, that’s essentially what’s happening here. That’s how you and I are going to make any money in this.
And so if they pick some good managers, then I think we might do well as investors with this. And if they don’t, then I don’t think it’s going to fare too well for us.
Now, here is what they said about this:
We believe it is the former founders and the leaders of tech companies who actually make the best venture investors as opposed to the MBAs and career investment bankers. That’s because these operators have firsthand experience building, growing and running tech companies and understand at a deep level the challenges and trade-offs. They come up day to day rather than just observing them from the sidelines.
This is a good point.
The Fundrise executive team has spent decades actually building tech companies. Moreover, with over a hundred software engineers and product managers on staff. We believe we have more real software depth and expertise than many venture funds. Operating within the broader tech and venture capital ecosystem for almost two decades has made us skeptical of the VC industry and is one of the driving motivators behind launching the fund.
We believe that this real world experience and broader mandate or mission to democratize the financial markets will not only be an actual differentiator in what has become a commoditized space, but will also make us attractive to other fellow tech company founders and leaders with whom we have a shared history.
So this is good. As far as I’m concerned. I like what they’re saying. I think this makes sense. I completely agree. I think there’s so many people who sit on the sidelines and are in the position of power and what they’re talking about here. You know, venture capital (VC) companies who haven’t actually done any of the work, don’t know what it’s like to be on the ground level.
And if they are filling this team up with operators who have done that. I think that’s good. I think that’s compelling. I like that there is a mission-kind of focus of doing things differently. I still don’t think that, I think there’s value in bringing some people in who are more traditional VC people who have been in that world. I mean, ideally I’d like to see a team rounded off, rather than just operators.
But all of this to say I like what I’m hearing. I think this is something that has me. I think it’s interesting and I think it gives me a little bit of a boost of confidence. Now it is just marketing material on their website. So, you know, we gotta take it with a grain of salt. But anyway, so that’s the first kind of concern and how they’ve addressed that and kind of where I stand with it.
The liquidity factor
Another concern that I think is worth building up is the liquidity factor. Okay, so we put our money in and invested, how and when can we get it out?
So like Fundrise as an investment, is meant to be a long-term investment. And that makes perfect sense. Because if they’re buying an apartment complex and I put some money in and I own 1/1000th of the apartment complex, or whatever the amount is, they can’t just sell the apartment complex whenever I just feel like taking my money out. Or when two people just feel like taking their money out. So it makes their whole business very, very difficult. If you and I are every two weeks trying to put money in and out, they just can’t run their business that way.
So I understand the logic of why they’re saying this is a long-term investment (how to become a millionaire investing this way!). We want you to plan on holding for five years or longer.
Who definitely should NOT invest in this
They make it really, really clear that this is a long-term investment and it’s no different with this Innovation Fund. They’re specifically saying this is a long-term investment, and I’ll just kind of read a little bit of what they said here:
The Innovation Fund is intended to be long-term investment. In many instances, it may take several years for an investment in a tech startup to materialize and result in a payoff for the fund. Additionally, why we intend to make the shares available for repurchase on a quarterly. As we do through real estate offerings, there can be no such guarantee.
Investors should understand that many of the assets held by the innovation fund, are inherently less liquid than most real estate assets.
Okay?
As with our real estate offerings, we recommend that investors plan to hold this investment for a minimum of five years, if not longer. Currently there is zero penalty or cost associated with liquidating shares if and when the innovation fund conducts repurchase offer.
So I think the biggest takeaway here is if you are investing for the short term, five years or less, I just wouldn’t even consider this. And honestly the same with Fundrise. But the fact that they’re saying that shares in this Innovation Fund are less liquid than their real estate holdings that just means that, don’t plan on putting your money in there and getting it out in six.
The risk involved
All right. Next question is how risky of an investment is this? And from everything I gather, I view this to be a little bit more volatile, slightly more risky than the traditional funded investment.
Learning your risk tolerance
So if you’re one of our 10 x investing students and you took the risk assessment which if you’re a student, I hope that you have by now.
I would say that this falls into a risk tolerance score range of 29 to 32, somewhere in there. So if you’re below that you know, especially if you’re at a lower twenties on your risk tolerance, I wouldn’t invest with this. I would put this off. But if you’re in the thirties on your risk tolerance, then this is something maybe you would consider including this in your investment portfolio.
And if you want to find out more about that risk tolerance test, check out our 10 x investing course.
Am I investing in Fundrise Innovation Fund?
Now the question is, am I going to be investing some of my money in it? So, all things said. I’m pretty intrigued by this. And like I said, I have a good experience with Fundrise. So far it’s been a very profitable and lucrative investment for me.
And so because of that, and because of the confidence I have in them, I’m probably going to invest a thousand or $2,000 in with them. Just try it out and see how it goes for a few years. I’m pretty optimistic that they are going to be able to minimize the downside risk of me losing much on this investment.
Meanwhile, I think they have some competitive advantages that might give them a chance and maybe even a good chance of beating the S&P 500, which that’s the thing. If we can just beat the S&P, we’re doing great.
And so, like I said, I’m probably going to put a couple thousand dollars in with them over the next couple months. I actually tried to do this just the other day, but long story short, the way I have my funded account I have it under a business that needs to be transferred to my personal before I can invest in the innovation fund. All that to say, it is on my to-do list that will probably be happening in the next couple weeks or so. Once I get the details ironed out.
Want to start investing with Fundrise?
If you decide to join, and you’re going to join, we have a link for you as we’re affiliate partners with them: So that means a couple different things. So one that means there’s oftentimes a sign up bonus that you get by using our link. At the time we are writing this article, Fundrise is giving you a $10 signup bonus by signing up using this link.
The other thing is, that they give us a cut. So, if you go and sign up, it doesn’t cost you anything and oftentimes you get a better deal. But the other cool thing is that we take the money from those referral commissions, and other things like that, to add to our giveaway pool! Which the next giveaway that we are going to be doing is for $2,000. And we’re going to be giving that to somebody in the SeedTime Community.
Anyway, so if you use that link, thank you! Because you’re helping grow that giveaway pot so that we can do these fantastic and big giveaways.. and bless the socks off of someone, hopefully you!
In closing
So, all that said, I’d love to hear from you what your thoughts are on this Innovation Fund. Have you have started investing with it? Are you planning on investing with it?
If you have any questions or concerns about Fundrise Innovation Funds, I would just love to hear any and all of that. So either send me a DM on Instagram @seedtime. Or, leave us a comment down below.
