Technology inevitably disrupts every industry. We’ve seen it over and over again — in commerce, media, advertising, computing, communication, and even work itself. Today, there remain only a few great bastions still resisting this revolution — airlines, automobiles, energy, real estate, and capital formation to name a few. These industries have been more resistant to current technology because, as companies like Tesla have shown, they are more capital intensive and therefore require enormous outlays of risk capital to achieve the scale necessary to deliver a truly disruptive product.
From the beginning, our mission has been to build a better financial system — one that works on behalf of individuals rather than at their expense. But the financial system itself is enormous, far too large to consume all at once. And it is complex, full of arcane regulation, hardly changed over the past century.
To succeed, we recognized that we would need two things:
- To attack the problem as one would eat an elephant, one step at a time
- A source of capital that was both patient and aligned with our long-term mission
I’m writing today to introduce you to the Fundrise iPO (internet public offering), a wholly unique ownership model whereby individual investors on Fundrise are given the opportunity to become investors in the company itself. It is our solution to the second of these requirements.
But first, a bit more background on how we are eating the elephant…
Where we started
The financial system, at its most basic level, is made up of three component parts: 1) distribution, 2) investment (or allocation), and 3) production. And while the glory may lie in investment or allocation, the power is actually in the distribution and production.
We started by rebuilding the distribution phase because, at the time, we believed it was the most ripe for disruption. The internet had created a new channel by which to communicate and interact with customers, and through our app and web platform, we unlocked an entirely new asset class for individual investors. We then paired this customer interface with our own backend infrastructure, leveraging software, to drive down the marginal cost of investment to nearly zero. As a result, we were able to bring the minimum investment down from the traditional hundreds of thousands to only $10, and for the first time (in our opinion) truly democratize access to the private real estate market.
This process of opening up private markets to individuals is, on its own, a big business.
Distribution (aka fundraising) is power because ultimately he or she who writes the checks makes the decisions. And unlike most investment managers who distribute their investments through an army of salespeople, we at Fundrise have formed direct relationships with hundreds of thousands of individuals.
And “hundreds of thousands” is just a start. There are tens of millions of investors who will need access to private markets over the next several years and decades.
However, as we’ve said, the mission of Fundrise — and its true, deeper potential — lies in disrupting not only one step of the chain but the entire financial system itself.
Where we're going
Over the past several years, our energy and attention has increasingly expanded to redesigning and rebuilding both the investment/allocation and production/operation components of the value chain. And while we still have a lot left to do, we have at this point created (to our knowledge) the first truly end-to-end software platform connecting the dollars entrusted to us by our investors directly to the assets we are investing in and operating on their behalf.
And while the benefits, both existing and future, are numerous, two simple measures of the value of our system come in the form of (i) greater overall efficiency (or reduced costs) as a result of vertical integration, and lower overall fees; and (ii) alignment of the decisions made at each step of the chain, back up to what is in the best interest of our investors.
Over the years, it’s been very clear to us that we are building a much different company than most in the financial industry appreciate (something we think is a good thing). This is probably because most fintech companies to date have been more hype than substance, essentially acting as shiny digital wrappers of the same underlying systems and products.
Over the years, nearly every financial institution or traditional investment manager has suggested the “brilliant” idea that we simply hand over to them, the “experts,” the money from our investors, so that they could put it into their own funds or investments — with, of course, a healthy markup and fee load along the way. These institutions saw our investors as an opportunity, easy prey to be taken advantage of, because they thought we and our investors wouldn’t know any better.
This is largely why we never raised growth equity from traditional financial organizations. The ring of power is too great a temptation.
Instead, we created the Fundrise iPO, giving our investors the opportunity to invest in and become owners of Fundrise itself, and in doing so align the interests of the shareholders of Fundrise with the interests of our customers, by making them one and the same.
What to expect
Over the next few weeks, we will be providing you with more information about the offering itself, including reporting on the business’ operating performance and instructions for how to actually invest in the iPO when the time comes.
Choosing to grow the business in partnership with our investors was certainly not the most straightforward (or conventional) approach. But we felt it was the best approach, so as to remain consistent in our purpose and provide the best possible investment experience to you.
I’m excited to extend you this invitation and hope you will join us on our mission. In the meantime, if you have any questions, please feel free to reach out to investments@fundrise.com or simply reply to this email.
Onward,
Ben and the entire Fundrise Team
