Fundrise, a fintech company primarily known for its real estate investment platform, ventured into new territory last year with the launch of its Innovation Fund focused on the tech market.

According to CEO Ben Miller, the fund is primarily aimed at investing in mid- to late-stage private technology companies. It’s unique in offering individual investors the opportunity to access venture capital-style strategies, but its incentivization structure and longer play on tech growth are different from the standard VC model.

“The last 10 years, private tech companies have been incredible investments, and most private companies haven’t been going public,” said Miller in a recent interview.

“Private tech has actually maybe been the best investment in the world over the last decade. And individuals pretty much are barred from investing in it. Normal people can’t invest in private tech, and that’s something that flies in the face of our values. So we are going to go after that market.”

Miller explained that the approach, raising capital from individual investors and focusing on long-term returns, could be seen as contrarian in a VC space that’s dominated by larger institutional investors and incentivizes quick returns.

Looked at from a macroeconomic scale, Miller sees some of the trends in the VC space as problematic facilitators of overvalued tech companies and potential bubbles. However, he argued there are real opportunities to be had in the tech sector if investment is accompanied by appropriate risk management and a deep understanding of product.

“I actually worked in tech in ’99 to ’01, and I remember in ’01, tech was left dead in a ditch by the side of the road,” said Miller. “Being contrary to sentiment, I think, is really critical to good investments. And if you forget about pricing, forget about sentiment, forget today, just think about what are the big drivers in society: demographics, globalization, war, disease, technology. Technology is fundamental.”

Fundrise’s Shift to Tech

When Miller launched the Innovation Fund in the summer of 2022, the idea was to invest in tech at a time when it might be undervalued following a burst tech bubble. The bet was on the tech market’s ability to rebound, just as it eventually did following the dot-com bubble in the early 2000s.

Solid companies can emerge after the hype of a bubble is washed away by a burst. The dot-com bubble wiped out dozens of companies that were overvalued, but companies like Google and Amazon emerged from the same time period. Hindsight tells us that these companies were the obvious investment at the time, but the difficulty for VCs and Fundrise alike lies in finding companies before they become massively valuable and well known.

For investors who get in on the ground floor before these companies go public, and at a time when the market isn’t inflated, the returns can be significant. The strategy is to identify solid companies, invest in them at a time of realistic valuation, and wait out short-term volatility in favor of long-term gains. The Innovation Fund’s investment time horizon is a 5-year minimum.

And, importantly, there’s a trend of larger, more developed tech companies waiting to go public. While they perhaps lack the massive upside of investing in early stages, these mid- to late-stage companies are more established and less risky. However, until they go public, they’re still inaccessible to individual investors, instead relying on massive funding from the top VC firms, which profit accordingly when these companies do well.

Miller explained that the Innovation Fund was launched to provide access to this style of investment for individuals who haven’t been able to access it in the past.

“The best companies at a good price are way better than a good company at a great price, especially with technology,” said Miller. “Facebook, Google, you name the companies that exploded — In 2021 it was a bubble, and they had everybody throwing money at them. You could not get into the best companies. Times have changed, and those best companies are much more open-minded than they were.”

Is This Venture Capital?

There’s a sense in which Fundrise’s approach can be framed as essentially a VC fund that’s open to average individual investors. Despite Miller’s emphasis on some differences, there are clearly parallels between a traditional VC and the Innovation Fund: They both focus on investing in private tech companies, offering investors a cut of the returns when funding a company helps grow that company’s valuation.

But there are key differences as well. When launching the fund, Miller highlighted three in particular: technology, timing, and incentives.

On the technology front, Miller pointed out that, unlike VCs, Fundrise is also a technology company. Founded in 2010, it has focused on real estate investment for over a decade. Using an online platform, the company’s users could invest in real estate developments and holdings. For Miller, this background in building tech is useful when considering how to invest in tech.

“We have 100 engineers on our team, approximately,” he explained. “We have a lot more technology capability than most venture investors. The type of technologies we’re interested in, we actually use, we use Fivetran, we use Snowflake, we use Figma. So it’s not just theoretical. You’d think, after 10 years of building Fundrise, that we have expertise to bring to bear.”

Miller also pointed out what he sees as a problematic tendency for accelerated fundraising fueled by the incentive structure of a standard VC. The risk is that this structure ends up snowballing to overvalue a company so the VC can display return on investment. The alternative, in his view, is to tie investment to real product advancement and to incentivize risk mitigation rather than fast returns.

“When everybody says, ‘Why does any tech company raise money every 18 to 24 months?’ It’s not because companies have some natural cycle of innovation over 18 to 24 months. It’s because their venture investors need to mark up their investments so they can raise the next fund. That’s very short-term thinking. Eighteen to 24 months is a difficult timeline to achieve anything meaningful.

“That structure drives incentives to be short term for venture investors. Momentum, momentum, momentum, more money, faster markups. In theory, more money, you go faster, but you can’t birth a baby faster with more money, right? Real things take time.”

How Has the Fund Performed?

What does this difference in strategy look like in practice? With the Innovation Fund launched a little over a year ago, it’s still too early to say.

Fundrise said that the fund is still in an “initial ramp-up phase.” It lists artificial intelligence, machine learning, and data infrastructure as primary sectors to target. Its largest investment is in enterprise software provider Databricks , a late-stage, privately held company with a valuation of $43 billion. But the portfolio also includes mid-stage companies like cybersecurity provider Vanta  and early-stage companies like Inspectify , which develops software used for property inspections.

Since Miller launched the fund developments in AI technology, particularly large language models, have buoyed the tech sector. The market continues to be a target for investors of a variety of types, and it remains to be seen how Fundrise’s approach will play out in this crowded and dynamic VC environment.