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Fundrise, which is known as a platform to easily invest in real estate, has decided to revolutionize the venture capital (VC) world. There are many venture capitalist funds out there. They seek to invest in startups that they believe will in the future either get acquired or go public on the stock market. By getting into companies at much smaller valuations, VC funds are able to get a very nice return. Sounds like a great way to invest right? Well, most people cannot do this. Many VC funds only allow accredited investors to invest with them. To be an accredited investor, one must have a net worth of $1 million or make $200,000 dollars a year.
Many people view this as a problem. They feel as though the average person should be able to participate in this kind of investing as well. I have thought about this as well. I have been a big proponent of crowdfunding because this allows the average person to invest in startups. This sentiment is also shared by Fundrise.
Fundrise is launching a fund called the “Fundrise Innovation Fund”. The fund will be investing in early stage startups that they believe will go public one day. This fund will be open to everybody to participate in. I think that that is amazing because it gives the average person access to startups.
In many ways, the fund will be very similar to a VC fund, but it is also different in a very important way which is fees. VC funds normally operate on a 2 and 20 fee structure. This means that the VC fund receives 2% of the initial investment as a management fee then also receives 20% of the carry. With Fundrise’s Innovation Fund, they will receive a 1.85% annual fee and that’s it.
My hope is that these moves inspire more funds to do the same. If their fund goes well, I hope more funds will also allow the average investor to invest with them, and I also hope that this inspires lower management fees as well.
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