I recently spoke in person with Ben Miller, CEO of Fundrise, concerning the Innovation Fund’s latest investments in private AI (artificial intelligence) firms.
Since the open-ended enterprise capital fund was launched within the second half of 2022 Innovation Fund has made a variety of promising AI investments that I used to be desirous to learn more about but did not have access to.
There are two key hurdles that individual investors must overcome to speculate in private artificial intelligence firms:
- Have enough capital to satisfy the minimum investment amount.
- A private connection that offers them the chance to speculate.
Many people can have considered one of these requirements, but not everyone has each at the identical time.
An investment in artificial intelligence that nearly missed out
For example, I wanted to speculate Anthropic’s latest Series F funding roundwhich closed in February 2024, but I could not since the minimum investment was $100,000.
I did not have $100,000 lying around since I had just purchased a house with money in October 2023. With recent expenses, surprise capital calls, and taxes to pay, probably the most I could afford was as much as $50,000, but ideally only $25,000.
I would like to construct a $500,000 commitment to non-public AI firms over the following three years. Having $100,000 in only one private AI company is just too concentrated for my taste. What if Anthropic became the Lyft of ride-hailing, while OpenAI became Uber, the dominant provider?
I knew the minimum investment was $100,000 because a co-parent had said he had invested and will introduce me to a partner at Menlo Ventures, the VC who led the round. So I discovered myself within the situation of getting the crucial contacts, but not enough capital. How frustrating.
It is less complicated to easily spend money on the innovation fund
But then I spotted that there was a neater strategy to get entangled with Anthropic and other Large Language Model AI firms without the two% management fee and 20% transfer fee that traditional VCs charge. The Innovation Fundwith its number of AI investments and a 1.85% management fee and 0% carry fee, presented this chance.
I used Anthropic’s large language model AI to edit my posts, including this one, to extend my productivity. Now my former editors – my father and my wife – are, in a way, unemployed!
But that is a very good thing, because my dad had mentioned that he was having a tough time maintaining with my publishing schedule. Meanwhile, my wife is busy putting the ending touches on my second book, due out in Spring 2025 by Portfolio Penguin.
Now I don’t need to cope with one other K-1 check come tax time.
Commitment to non-public firms for artificial intelligence
In conversation with Ben Miller, I learned that around 90% of the Innovation Fund’s portfolio is supplied with artificial intelligence to various degrees. This includes investments in large language models, data infrastructure firms, and corporations using AI to enhance their products.
Furthermore, in reviewing the Innovation Fund’s holdings, it seems clear to me that several of the investments will eventually go public, leading to liquidity events for shareholders. In particular, names like Canva, Databricks and ServiceTitan appear poised to go public in the following yr or two.
For me, the flexibility to see what a fund is holding and draw conclusions concerning the way forward for those holdings is a strategic advantage.
Closed vs. open enterprise capital fund model
Investing in a standard closed-end enterprise capital fund typically requires investors to speculate no less than $100,000 to $250,000 without knowing what specific investments the overall partners will make. If the GPs determine that investments are consistent with the fund’s stated objectives, capital calls are made to the limited partners over a period of two to a few years to finance these deals.
Basically, the investor’s trust lies 100% in the flexibility of the overall partners to seek out good deals, provided they even have access to the closed-end enterprise capital fund. The Innovation Fund takes a unique approach, allowing investors to review most investments made by private firms before deciding on the quantity to speculate.
This more transparent model offers individuals more information before committing capital. And if the prevailing investments are valued at the extent because the last fundraising, but there may be a very good probability for these firms that they might raise a brand new round of financing or go public with a better valuation, that’s all the higher for investors and future capital distributions .
An open-ended enterprise capital fund offers investors more insight
The ability to view many of the Innovation Fund’s holdings (some not disclosed at firms’ request) allowed me to realize more insight because of my inclination to see the connections as an experienced investor.
My tennis nemesis, who I beat within the 40+ 4.5 playoffs last yr after he rejected me from joining his team, recently joined Canva.
Founded in Sydney in 2013, Canva is an internet design and visual communication platform with the goal of giving anyone on this planet the ability to design anything and publish anywhere. They launched Magic Design, an AI-powered design tool where you write a prompt and the tool creates the design for you.
I played against his old team last weekend and he wasn’t there. When I asked the captain where he had gone so I could cook it again, he said Australia!
In November 2023, he took on the role of Canvas Head of SOX (Sarbanes-Oxley Act) Observance. SOX compliance is crucial to comply with the financial reporting, information security and auditing requirements of the SOX Act, which goals to stop corporate fraud. The principal reason an organization would want someone on this role is to arrange for an initial public offering within the United States.
Canva will go public in 2024 or 2025 at the most recent
Therefore, if my dot-connecting skills are correct, I expect Canva to go public with 80% certainty by the tip of 2024. And if not in 2024, then actually by the tip of 2025 at 95%.
I also consider that the general public markets are hungry for more AI plays alongside the massive firms like Microsoft and NVIDIA. Therefore, I believe it’s a greater financial decision to have the opportunity to speculate before Canva goes public.
Additionally, I consider the market is hungry for fast-growing design firms apart from Adobe. Adobe tried to purchase Figma for $20 billion but failed resulting from antitrust issues.
However, there are in fact no guarantees when investing in risk assets, especially in private AI firms. Because of the chance, every investor must settle on an appropriate asset allocation. Personally, I’m willing to speculate between 10 and 20% of my investable capital in alternative investments, including private investments.
A discussion about private AI firms
I encourage you to hearken to our podcast episode where I ask Ben how the fund values ​​its portfolio holdings, what developments he sees in AI, and more. Maybe you’ll be able to connect some investment dots too.
You can click Apple or Spotify or hearken to the podcast embedded below.
If you ought to spend money on private AI firms, you’ll be able to explore this Innovation Fund here. Fundrise is a sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise.
