Investing In Private AI Companies Without Connections Or Big Money

Investing In Private AI Companies Without Connections Or Big Money

I recently caught up with Ben Miller, CEO of Fundrise in person, about the Innovation Fund’s latest investments in private AI (artificial intelligence) companies.

Since launching the open-ended venture capital fund in 2H 2022, the Innovation Fund has made a series of promising AI investments that I was eager to learn more about, but unable to access.

There are two key hurdles that individual investors must overcome to be able to invest in private artificial intelligence companies:

  1. Having enough capital to meet the minimum investment amount.
  2. Having a personal connection that will grant them the ability to invest.

Many people may have one of these prerequisites, but not everybody has both at any given time.

An Artificial Intelligence Investment That Almost Got Away

For example, I had wanted to invest in Anthropic’s latest Series F funding round, which closed in February 2024, but I couldn’t because the investment minimum was $100,000.

I didn’t have $100,000 lying around, as I had just purchased a house with cash in October 2023. With new expenses, surprise capital calls, and taxes to pay, the most I could afford to invest was up to $50,000.

Besides, I want to build $500,000 of exposure to private AI companies, which would be up to 10% of my current investable capital. Having $100,000 in just one private AI company is too concentrated for my risk tolerance.

I knew the investment minimum was $100,000 because a fellow parent had said he invested and could introduce me to a partner at Menlo Ventures, the VC leading the round. So I found myself in the situation of having the connections, but not enough capital. How frustrating.

Easier To Just Invest In The Innovation Fund

However, I then realized there was an easier way to gain exposure to Anthropic and other Large Language Model AI companies, without the 2% management fee and 20% carry fee traditional VCs charge. The Innovation Fund, with its variety of AI investments and a 1.85% management fee and 0% carry fee, provided that opportunity.

I’ve used Anthropic’s large language model AI to help edit my posts, including this one, boosting my productivity. Now my former editors – my father and wife – are somewhat out of a job!

But that’s a good thing, as my dad had mentioned he was having a hard time keeping up with my posting schedule. Meanwhile, my wife is busy putting the finishing touches on my second book, set to be published by Portfolio Penguin in Spring 2025.

Now I don’t have to deal with another K-1 come tax time either.

Exposure To Private Artificial Intelligence Companies

In talking to Ben Miller, I learned that roughly 90% of the Innovation Fund’s portfolio has exposure to artificial intelligence to varying degrees. This includes investments in large language models, data infrastructure companies, and firms using AI to improve their products.

Furthermore, upon reviewing the Innovation Fund’s holdings, it seems evident to me that several of the investments will eventually go public, creating liquidity events for shareholders. In particular, names such as Canva, Databricks, and ServiceTitan appear poised to go public within the next one or two years.

To me, being able to see what a fund is holding and then make deductions about the future of these holdings is a strategic advantage.

Closed-End vs. Open-End Venture Capital Fund Model

When investing in a traditional closed-end venture capital fund, investors normally have to commit at least $100,000 – $250,000, without knowing the specific investments the general partners will make. As the GPs find investments aligned with the fund’s stated goals, capital calls are made over two-to-three years to the limited partners to fund these deals.

Essentially, 100% of the investor’s trust is placed in the general partners’ ability to find good deals, if they can gain access to the closed-end venture capital fund in the first place. The Innovation Fund takes a different approach, where investors can review most of its private company investments before deciding how much to invest.

This more transparent model gives individuals more information before committing capital. And if the existing holdings are valued at levels since the last fund raise, but there’s a good chance these companies could raise a new round of funding or go public at a higher valuation, then all the better for investors and future capital distributions.

An Open-Ended Venture Capital Fund Gives Investors More Insights

Thanks to being able to see most of the Innovation Fund’s holdings (some are undisclosed per the request of the companies), I was able to gain more insight, thanks to my propensity for connecting the dots as a veteran investor.

My tennis nemesis, whom I beat in last year’s 40+ 4.5 playoffs after he rejected me from joining his team, recently joined Canva.

Launched in 2013, Canva is an online design and visual communication platform with a mission to empower everyone in the world 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 this past weekend and he wasn’t there. When I asked the captain where he went so I could plan on beating him again, he said Australia!

In November 2023, he took on the role of Head of SOX (Sarbanes-Oxley Act) compliance. SOX compliance is necessary for adhering to the financial reporting, information security, and auditing requirements of the SOX Act, which aims to prevent corporate fraud. The primary reason a company would need someone in this role is to prepare for going public in the United States.

Canva Going Public In 2024 Or 2025 At The Latest

Therefore, if my dot-connecting skills are correct, I expect Canva to go public by the end of 2024 with 80% certainty. And if not in 2024, then by the end of 2025 with a 95% certainly.

I also believe the public markets are hungry for more AI plays besides the big ones like Microsoft and NVIDIA. As a result, I feel like being able to invest before Canva goes public is a better financial decision.

Further, I believe the market is hungry for fast-growing design companies other than Adobe. Adobe tried to buy Figma for $20 billion and failed due to antitrust issues.

A Discussion About Private AI Companies

I encourage you to listen to our podcast episode, where I ask Ben about how the fund values its portfolio holdings, where he sees AI going, and more. You can click Apple or Spotify or listen via the embedded podcast below.

If you want to invest in private AI companies, you can explore the Innovation Fund here. Fundrise is a sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise.

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