I recently met with CEO Ben Miller. Fundraising activities He spoke directly about the Innovation Fund's latest investments in private AI (artificial intelligence) companies.
Since launching an open-end venture capital fund in the second half of 2022, innovation fund has made a series of promising AI investments that I wanted to learn more about but didn't have access to.
There are two important hurdles that retail investors must overcome before investing in private artificial intelligence companies.
- Have sufficient capital to meet the minimum investment amount.
- Having a personal connection that gives you the ability to invest.
Many people may meet one of these prerequisites, but not everyone always meets both.
Investment in artificial intelligence almost disappears
For example, I wanted to invest in Anthropic's latest Series F funding round, which closed in February 2024, but I couldn't because the minimum investment amount was $100,000.
I just bought a house in October 2023 for cash, so I didn't have $100,000 on hand. The most I could invest was $50,000 for him, and if possible, he could invest up to $50,000, considering the new expenses, the sudden capital, and the taxes he had to pay. $25,000.
We want to build $500,000 in exposure to private AI companies over the next three years. Having his $100,000 in one private AI company is too concentrated for my liking. What if Anthropic becomes the Lyft of ride-sharing, and OpenAI becomes the dominant player, Uber?
I knew the minimum investment was $100,000. A friend of mine invested and he said he would introduce me to partners at Menlo Ventures, the VC who is leading this round. So I ended up in a situation where I had connections but lacked capital. How frustrating!
Investing in innovation funds is now easier
But then I realized there was an easy way to get exposure to Anthropic and other large language model AI companies without the 2% management fee and 20% carry fee that traditional VCs charge.of innovation fundoffered that opportunity with its AI investing versatility and 1.85% management fee and 0% carry fee.
I've used Anthropic's large-scale language model AI to help me edit posts, including this one, to improve my productivity. Now, my former editor, my father and wife, have lost their jobs.
But my dad said it was hard to fit into my posting schedule, so that was a good thing. Meanwhile, his wife is busy finishing my second book, scheduled to be published by Portfolio Penguin in spring 2025.
Now you don't have to deal with K-1 again at tax time.
Exposure to private artificial intelligence companies
In speaking with Ben Miller, we learned that over 90% of the Innovation Fund's portfolio has been exposed to varying degrees of artificial intelligence. This includes investments in large-scale language models, data infrastructure companies, and companies that use AI to improve their products.
Furthermore, when considering the Innovation Fund's holdings, it seems clear that some of its investments will eventually go public, creating a liquidity event for shareholders. In particular, names like Canva, Databricks, and ServiceTitan appear poised to go public within the next year or two.
For me, being able to see what a fund holds and speculate about the future of these holdings is a strategic advantage.
Closed-end and open-end venture capital fund models
When investing in a traditional closed-end venture capital fund, investors typically need to commit at least $100,000 to $250,000 without knowing the specific investment the general partner will make. Once the GP finds investments that are in line with the fund's stated goals, he spends two to three years raising money with limited partners to fund these deals.
Basically, if you have access to a closed-end venture capital fund in the first place, the investor's confidence is placed 100% in the general partner's ability to find a good deal. The Innovation Fund takes a different approach, allowing investors to consider investing in most private companies before deciding on an investment amount.
This more transparent model provides individuals with more information before committing capital. And even if the valuations of existing holdings are at levels seen since their last fundraising, there is a good chance these companies will raise new funding rounds or go public at higher valuations. If so, all the better for investors and future capital distribution.
Open-ended venture capital funds offer further insight for investors
Thanks to being able to see most of the innovation fund's holdings (some of which are kept private at the request of companies), and thanks to my penchant for connecting the dots as a seasoned investor, I have more insight. I was able to get it.
My tennis nemesis, who won over 40 4.5 playoffs last year after refusing to let me join the team, recently joined Canva.
Founded in Sydney in 2013, Canva is an online design and visual communications platform with a mission to empower anyone 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 a design for you.
We played against his old team last weekend, but he wasn't there. He asks the captain where he went to get cooked again and he replies Australia.
In November 2023, I assumed the role of Canvas Lead for SOX (Sarbanes-Oxley) Compliance. SOX compliance is necessary to help companies comply with the financial reporting, information security, and auditing requirements of the SOX Act, which aims to prevent fraud. The main reason companies need someone in this role is to prepare for an initial public offering in the United States.
Canva plans to go public in 2024 or 2025
So, if my dot-connecting skills are correct, I would predict with 60% certainty that Canva will go public by the end of 2024, even if the guidance is 2025 or 2026. And if the company doesn't go public in his 2024, here's what I think. We believe there is an 80% probability that this will happen by the end of 2025.
I also think the general market is looking for more AI efforts beyond the big players like Microsoft and NVIDIA. As a result, we feel being able to invest in Canva before it goes public is a better financial decision.
Additionally, I believe the market is hungry for fast-growing design companies other than Adobe. Adobe tried to buy Figma for $20 billion, but that failed due to antitrust issues.
Of course, there are no guarantees when it comes to investing in risk assets, especially private AI companies. Because of the risks, all investors must determine appropriate asset allocation. Personally, I plan to allocate 10% to 20% of his investable funds to alternative investments, including private investments.
Discussion about private AI companies
Be sure to listen to our podcast episode. In this episode, we ask Ben about how funds value their portfolio holdings, the future of AI, and more. Maybe you can connect the dots on investing.
You can listen by clicking on Apple or Spotify or via the embedded podcast below.
If you want to invest in a private AI company, consider the following: Click here for Innovation Fund. Fundrise is a sponsor of Financial Samurai, and Financial Samurai is an investor in Fundrise.
