How To Invest In Startups Leading The AI Revolution

Last week, The Juice profiled StartEngine, one of our favorite platforms where everyday investors can invest in startups. You can find the link to that installment in today’s Freshly Squeezed section. Read it and the other stories we have down there about alternative investing after you read this.

Today, we look at Fundrise. However, we do it using a different approach. With StartEngine, we focused on how to set yourself up on the platform, a process which is pretty much the same everywhere. As with bank and brokerage accounts, onboarding doesn’t vary much from place to place. 

In the world of alternative investing, the true variation lies in exactly how you access alternative investments. With StartEngine, small retail investors can invest in startups, most of which we have never heard of. Fundrise uses a very different strategy. 

Fundrise has a venture fund that gives you access to startups involved in the AI and data spaces. And some of the companies that make up the fund are huge names that you have probably heard of. 

We think it’s interesting so we’ll highlight the most interesting part as a gateway to you potentially considering the platform. 

Fundrise launched in 2012 just as the government made equity crowdfunding easier for companies looking for capital and investors looking to invest. It started with a focus on real estate, which is something it still does. The firm manages a $7 billion-plus real estate portfolio that you can invest in.  

Interesting in and of itself. 

But even more intriguing is Fundrise’s Innovation Fund.

We’ll use some of the company’s literature to help explain exactly what this is and why The Juice thinks it’s worth your time as a way to access solid companies in a huge space. The type of venture capital investment that was once only available to the 1%. 

Fundrise markets its VC fund as a way to “Invest in tomorrow’s great tech companies, today” with the “aim” to “to give all investors the opportunity to invest in a portfolio of top-tier private technology companies before they IPO.”

And this is really the key. When in history, have people with a relatively small amount of money been able to invest in tech companies — or in any other space, for that matter — pre-IPO? And not just pre-IPO in any old company, in today’s AI and data-focused leaders. Until recently it just hasn’t been a thing. 

Fundrise says that “The Fund is actively investing and has built a portfolio that includes some of the top Artificial Intelligence, Machine Learning, and Data Infrastructure companies in the world.”

Of the 15 assets in the portfolio, Canva might be the most intriguing. Canva is a late-stage startup that is profitable and carries a $40 billion valuation. 

Fundrise’s Innovation Fund hasn’t generated impressive returns yet. However, we think this has a lot to do with the fact that it owns mostly early- and mid-stage companies. As AI evolves, some of these companies will exit. When they do, we think the Innovation Fund could see significant growth. 

As Fundrise says: “Due to the nature of high-growth technology companies, it is expected that returns may vary substantially over the near-term and, as a result, the Fund is intended only for long-term investors with an understanding of the risks associated with illiquid investments.”

Something else Fundrise reported really piqued The Juice’s interest:

When looking at the Fund’s portfolio of 14 private companies, the weighted-average annual company revenue based on the latest available reporting is roughly $1B while the average annual growth rate is an astonishing 374%.

Even when excluding the large AI LLM companies (which have shown themselves to have an unusually high growth rate even for technology startups), the remaining portfolio of 11 companies has a weighted-average annual revenue of roughly $1.1B with an average annual growth rate of 87%.

For reference, the Nasdaq 100 grew revenue by 15% last year, while the S&P 500 grew revenue by 4%.

Said another way, the portfolio consists of companies that are producing exceptionally robust revenue at an exceptionally high growth rate, and you’d be hard pressed to find a diversified private portfolio of any material scale that would exceed these numbers.

This isn’t the type of investment you put your retirement nest egg in. The great thing is that it’s easy to get your feet wet. There’s a minimum investment of $10 and no maximum. 

The Bottom Line: If you’re a small investor, you never had pre-IPO access to Google or Amazon, Airbnb or Uber. And you don’t have access yet to a large number of the private firms that companies such as Google are investing in. However, you have access to some of them. And Fundrise’s Innovation Fund is worth your time if you’re interested in diversifying into emerging areas of tech where some solid startups could very well be the next big thing. 

As everyday investors gain increasing access to pre-IPO companies — pure startups, venture capital opportunities — we have to ask are alts even alternative anymore? When you add in the emergence and how mainstream, for example, cryptocurrency has become, you could certainly argue that they’re not. This is something The Juice will explore later in the week.

• How To Invest In Private Companies on StartEngine
• Navigating Market Volatility: The Alt Advantage
• What Is Fractional Share Investing?
• 3 Ways, Including An Alternative, To Invest In Real Estate