The Venture Capital Crash, Explained | Saira Rahman

The last two years have seen a severe correction in the venture capital asset class, for portfolio company valuations, as well as in VC fundraising.

Saira Rahman, VP of new investor initiatives at Fundrise, joins WealthChannel’s Andy Hagans to discuss why venture capital crashed, and how the wreckage has created new opportunities for investors.

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Episode Highlights

  • Saira’s assessment of the current venture capital market.
  • Why a bubble formed in venture (including clear signs of the peak in 2021).
  • How the crash occurred, including factors that pre-dated high inflation, rising interest rates and the collapse of Silicon Valley Bank.
  • Why Saira believes that institutional investors should consider increasing their allocations to private equity and venture.
  • Opportunities in the secondary market in venture capital investments, and the importance of diversification when allocating to venture.

Today’s Guest: Saira Rahman, Fundrise

About The Show: WealthChannel With Andy Hagans

Learn about wealth and investing from the world’s leading experts. Host Andy Hagans conducts in-depth interviews to explore the topics that matter most, to protect and grow your wealth.

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– [Saira] You went from these massive valuations to, you know, not being able to raise at all. And if you were, it was at a significantly lower valuation than you originally would have expected. And I think, now, you’re starting to see a lot of companies either have to shutter or really taking on deep discounts in order to get more funding. 

[music] [Andy] Welcome to the show. I’m WealthChannel co-founder, Andy Hagans. You know, the venture capital market, just like any asset class, goes through boom and bust cycles. Venture had an incredible run with valuations peaking just a few years ago, and then the venture market crashed in 2022 and throughout 2023 really to where we are today. 

But could this VC crash be an opportunity for everyday investors, and what’s the best way to invest in venture capital right now? Joining me to discuss this is Saira Rahman, VP of new investor initiatives at Fundrise. Saira, welcome back to the show. 

– Thank you so much for having me back. 

– And so last summer, since we last spoke, I understand you’ve had a new addition to your family. Is that right? 

– I have. I have a newborn son. It’s been a roller coaster, it’s been a trip, but we love it. 

– Well, congratulations. I mean, it’s a lot obviously going on for you this year, then, professionally, personally. It is hard to balance everything, but it can also be a lot of fun. Sometimes I think that message gets missed, right? 

– Absolutely. I mean, it’s kind of funny. I liken a lot of things that go on in parenting to, you know, how you invest both your time and your energy. And you know, I would probably even liken it more to venture-backed companies, because there’s a lot of iteration and there’s a lot of…you throw a bunch of money at stuff and you see what sticks, so. 

– I actually love that. It is kind of an early-stage startup kind of culture, being a new parent. Is it ready, fire, aim? Isn’t that the mantra for startup? 

– I don’t know if you’re talking about my kid’s bowel movements or not, but. 

– All right. Well, I don’t want to get us too far off track, but you know, you’re a startup person, you’re a VC, you know, you’re involved in VC, you’ve been involved in startups. I think we’re interested in a lot of the same things, but your knowledge of, specifically, the venture capital asset class is a lot deeper than my own. 

That’s what we want to talk about today. I want to start with just a big question, with where we are now. Obviously, the venture capital market has had some pain in the past couple of years. But what is your assessment of the current VC market? Here we are in January of 2024. 

– It’s a really unique environment. I think 2023 and really a lot of 2022 was this horrible experience for any venture-backed company attempting to raise funding. And you went from these massive valuations to, you know, not being able to raise at all. And if you were, it was at a significantly lower valuation than you originally would have expected. 

And I think, now, you’re starting to see a lot of companies either have to shutter or really taking on deep discounts in order to get more funding, which is, you know, great for some people, not great for others. 

But I think the venture world, in general, is also suffering quite a bit. You saw the companies suffering in the last couple of years, and now you’re seeing venture firms shuttering. You’re seeing venture firms unable to get their LPs to raise their second, third, fourth funds. And you’re seeing that those vintages from 2021 and 2020 even not really bringing out good returns like they were expecting to bring out. 

So I think it’s a very different venture macro atmosphere than it ever has been before. 

– You know, you mentioned some pain. Where’s the most pain? Like, obviously, there’s pain if I’m an early-stage startup or a startup in year three, four, five, doing series A, series B, whatever. 

There’s pain there. I might be taking a valuation haircut. It might be harder to raise capital. Is that kind of the worst thing that’s going on right now or do you think the pain is even more painful at the actual funds themselves that are trying to raise capital from LPs? Where’s the damage, I guess, the worst? 

– Oh, man. I think it depends on which seat you’re sitting in. I think if you are a founder and you didn’t really bootstrap your way through the last year or so because getting the funds in your pocket was going to be extremely difficult, you’re either, A, probably running out of money and contemplating some form of an exit that’s not the one that you dreamed about or, B, you’re potentially just going to shut down. 

And then there’s a separate aspect which is from the venture seat, which is, are you able to continue raising from your LPs? Are your LPs happy with the current performance of their fund? And are you potentially in a niche that’s no longer one that should be venture-backable? I think you and I were exchanging emails about this, but I mean, there’s a hardware VC that just shut down, and he literally said in his commentary that early-stage hardware is not an efficient market for venture backing. 

And I think there’s going to be more of that over the course of the next several months, because early stage is very tough and a lot of those markets are saturated. 

– So then, looking backwards, you know, to walk down memory lane, obviously, venture hat is, like, well, they had a good run. I know there’s been multiple boom and bust cycles, right? It’s not the first kind of cycle where there was a bubble and then the bubble pops. But when you look at valuations and capital raise into the VC funds themselves, this really all reached a peak around 2021, and when you look at the numbers, it’s really amazing to see just how, you know, the numbers have plummeted year-over-year and then year-over-year again. 

But looking backwards, in 2021, like, did everyone lose their minds? I mean, maybe it’s just obvious in hindsight, but I feel like, even at the time, there were some voices in VC, in startup land, saying this isn’t sustainable, you know. 

– I think there were. I personally worked at a fintech company that had a great valuation that was trying to close a series B, and it closed on December 31st of 2021. But I think there’s a lot of hype surrounding certain industries, fintech being one of them, and you were able to fundraise based on what your bigger better peers were doing. 

So if you’re a fintech company, and Chime is crushing it, you’re probably going to raise at a huge valuation. Same thing goes for other industries that, in the public markets, had similar circumstances, with lots of entities that were in the public markets absolutely crushing it. 

Then you see that huge upside-down shift where a lot of those companies tanked in the public markets and the valuation no longer makes sense in the private markets. And that, for me, was really the eye-opening moment where it’s like, if you’re not getting the same type of quality as a public company, you’re not going to get the same return in the private sector either. 

– Totally. And I mean, to me, that same sort of cycle or effect could be seen in the real estate market where publicly traded REITs took these substantial hits to where they were trading and started trading at discounts, but then, in the private markets, you didn’t necessarily see that reflected. And to me, just being honest, for me, it was just, like, annoying, right? 

In the real estate market, it’s kind of this slow-moving thing where there’s, like, a lag. Sometimes the lag can be a year, two years, three years, where whatever is going on in that publicly-traded market, it just takes time to play out for sellers with unrealistic asking prices to capitulate. And so, in the real estate market, as an investor, like, I just get annoyed. 

I’m just like, “Okay, guys, call me again in two years.” Did that happen in venture, in your opinion, or was it like a much…? It sounds like, to me, like it’s a faster feedback loop where people can kind of go, “Well, you know, Zoom and these other three companies, their stock price crashed, or whatever, so obviously, your private valuation needs to take a 50% haircut.” 

Is it a faster feedback loop in venture than it would be in, like, real estate? 

– I don’t know. I guess it varies because the time that a company needs to fundraise is inevitably different for every company. So I think it really depended, A, on the sector that you’re talking about, the industry in the private sector, and it also depends on how much of a haircut you’re actually taking based on the public entities that you would comp it to. 

So, that was definitely one that, I guess, it depends. But what I will say is that there’s a lot more private companies than there were public companies now. I was actually just reading an article from KKR saying that there’s 64 times more private companies than there are public. 

So there’s just this wide expanse of venture-backed companies that have been staying private for longer and are much larger than ever before in history. So there’s significantly more movement, especially in later-stage venture, that you can take a look at now as compared to public companies. 

– Yeah. And that’s an interesting development in its own right is that just with more and more companies staying private… There’s a little bit of information asymmetry there, depending on the industry, where you don’t even necessarily know how companies are valued. But one kind of development in the last several years, we have the growth of the secondary markets, right? 

And so there’s a little bit more transparency into these valuations, which I think is a fantastic thing. But let’s rewind the clock just a little bit back to that, you know, you mentioned when the startup that you were working for and when you guys closed your raise, but what was it that really was the beginning of the bubble popping in venture? 

I mean, I guess, in my mind, just as a sort of casual observer, we started to have runaway inflation because of different policies from, you know, the lockdowns and all that kind of thing, and then we had interest rate hikes, and then we had the collapse of Silicon Valley Bank. I mean, is it that simple? 

Is that, like, the major pieces of this plot line? Walk us through what happened, you know, that led to it all unraveling? 

– I think there was this unreal valuation aspect, and some of that had to do, if I’m being totally transparent, with FOMO between venture firms. So you could literally pit a venture firm against another venture firm and say, “I’m getting a term sheet at X amount of money.” 

– Yeah. 

– And the revenue multiples, especially in early stage, were relatively unrealistic. So you’re looking at, you know, 30x to 50x revenue on the valuation, which is just…it’s unfeasible. It’s not something that you would actually expect, but that’s the valuation that you’re being presented. And then, suddenly, it almost felt like it was overnight. 

Every single venture firm recognized that it was unsustainable to raise perpetually at this level, which, to their credit, that’s their job, right? Their job is to actually continue to raise at higher and higher valuations. That’s what their LPs want to see. 

Their LPs want to see that the next round is at a higher valuation, that the company is continuing to grow. So there’s a little bit of maligned incentive there, but because of that fact, I think almost overnight, a lot of the venture firms said, “We need to slow down. We need to stop permitting these crazy valuations.” And it caused a drastic shift across, at least from my experience, the fintech sector, but it looked like, once I took a couple of steps back and once I started at Fundrise, pretty much every sector was getting hit in the same way. 

– And was that before the Silicon Valley Bank crisis? 

– Well before, yes. That was well before, yeah. 

– So this was…okay. So this is new to me. There was…I mean, like I said, I think there were some voices of reason inside VC that were saying, “This is unsustainable.” And you’re telling me that there was almost this sort of sector-wide, asset class-wide realization among the GPs that, like, “Guys and gals, we can’t keep doing this. This is going to end in a disaster for everybody.” 

– Yeah. I think a lot of GPs turned to…a lot of the venture firms turned to their companies and said, “You need to figure out how to become profitable. You need to cut back on your expenses by X percentage.” I mean, I heard… 

– God forbid, Saira, God forbid, you become profitable and cut expenses. 

– Stop spending their money. It was kind of crazy, some of the stories that I heard from some of my colleagues, but that started in 2022. Early Q1 2022, truly, is when that started, and it expanded all the way through 2023. And frankly, late 2023, at least, is when Fundrise started taking advantage from an investing perspective, but I know that there have been, you know, a few opportunities across the board with maybe a handful of companies in terms of primary fundraises. 

But the vast majority of opportunity because of the fact that all of those companies had to stop fundraising, it existed in secondaries, and that was where the opportunity really lay, particularly over the course of the last, call it, 12 months. 

– Totally. And I do want to get to that opportunity. I mean, that’s kind of the big thing we want to talk about. But just to understand a little bit more, you know, how this happened, how the valuation reset happened, and you mentioned maligned incentives or misaligned incentives, and you know, I’m thinking, “Okay, if I’m a GP with a VC fund, how do I make my money, right?” 

Is it 2 and 20? Like, is that standard or, you know, something like that, like annual fee? Okay. I mean, from a certain viewpoint, not that I would be this cynical, but you know, others may, if you can raise a $500 million fund and deploy it into prestigious companies, regardless if they’re profitable or not, who cares about the 20, you know? 

You can pretty much make good money just off 2% of 500 million, right? Like, it’s not bad. So, I mean, you know, it’s just so easy to invest other people’s money, OPM, at crazy valuations, right? 

I mean, I guess that’s what, as an investor, as an LP, that’s what makes me skeptical of investing in, you know, new vintage, new VC funds. It’s hard. You know, if I were an institution and you kind of go, “Well, you know, whatever, this is 5% of our $50 billion pension.” 

It’s a little easier. But as an individual investor, with my own money, like, that’s really hard. Again, I’m talking about primary funds. I’m not talking about secondaries. 

– I hear that, and I think that’s where the question arises. How do you invest with the interest of the investor in mind? And I think that was really difficult over the course of the last, call it, three to five years. 

– Okay. Well, okay, we’ve talked about, you know, the bubble. Am I allowed to say it, Saira? I mean, here’s the thing, you never want to dance on anybody’s grave, right? And by the way, I’m an entrepreneur, and I’ve started over 10 different companies. And my batting average is less than 500, right? 

So I know what it feels like to do a startup. You have big dreams. It doesn’t work out. Not fun. It’s a little bit painful. So, for any entrepreneur who’s struggled, I definitely have empathy, but there’s a part of me that’s just like, “I’m so glad that this bubble popped, you know, and I’m happy that it did pop. 

Am I a bad person for saying that? 

– I don’t think so. You know, with every bubble that pops, new opportunities arise. You know, we’re going to see a really cool new vintage of companies that will grow out of this. I think the companies that did sustain themselves will become some of the biggest companies in their respective industries over the course of the next decade. 

I mean, there are always roses among the thorns, right? So, I think you’re absolutely right. We needed to have that happen in order for us to begin to iterate on this, whatever this portion of the private capital, if you want to call it arecession, whatever the case it may be, however it’s going to evolve into its next environment. 

– Totally. And yeah, I do have friends who are GPs at VC funds. So you know, I love you guys, anybody who’s listening. So don’t get me wrong, but I mean, even as a GP, right, I want a healthier landscape, a healthier, more realistic market. 

I think, when market participates, whether the startups, the LPs, the GPs, when people have realistic expectations, it sets everybody up for success. Really, you know, what’s the phrase? I always butcher it, you know. When there’s blood in the streets, that’s the time to rush in and invest. You know, I know I butchered that. But is there blood in the streets right now? 

Is this the time to say, on average…it looks to me like, on average, there’s a 50% haircut in valuations, you know, or 40% haircut, or something, some crazy haircut, much more severe of a correction than we’ve seen in real estate. Is this the time? 

I mean, is this like, “Hey, I’ve been patient. I waited out 2021 and said this looks crazy?” 

– I think it’s a great time to be investing in venture. You know, not every company is going to be at a 50% haircut, but that being said, if you’re one of those people that loves to try to time a market, this might be that. I’m not one of those people that’s always trying to time, but that being said, I mean, I think a lot of venture investors are looking for deals right now. 

– So, let’s talk about that, Saira. So you know, the normal, typical way to invest in venture, really briefly, what would that be? You know, 10 years ago, I’m Harvard endowment fund or Yale endowment fund or CalPERS pension, whatever. How would I normally invest in venture? 

– If you’re an allocator, you’re probably selecting some of the venture funds, probably some of the top handful in the world, and giving them your money through the endowment in order to hopefully get, you know, a 3x return on your money. And those are typically early-stage venture firms. 

So they stick to a very specific type of investment, which means that they’re leading a round after they take your money in some specific industry based on their thesis, and they are charging you 2 and 20. 

– Got it. And those are generally big investors, often either very high net worth, ultra-high net worth, and oftentimes, they’re institutional investors. They can invest capital, you know, huge amount of capital. 

There might be funds with million dollar minimums or $10 million minimums, or I’m sure even higher than that. So they’re not really raising money from everyday investors at all. 

– Right. 

– And then they’re investing them, you know, into these early-stage companies, and it’s illiquid, right? So it might be, what, a 6- to 10-year hold or something for there to be liquidity from that investment. 

– Exactly, exactly. They’re all very long-term holds, and there is no liquidity. So typically, they’ll have a capital call, whether it’s, you know, a couple of times a year, whatever cadence they choose. And you put your funds up at that point in time, and they’re typically deploying, as those funds come in, to a variety of companies. 

– So, is it a good time? Just one more question then about the traditional path, then I want to talk about the nontraditional path. But would it be a good time to invest in that traditional path right now, in your opinion, just in a fund that’s raising new money right now to invest in early-stage series A type investments? 

– I mean, I’d be lying if I said that I wasn’t investing in funds. I think, it’s a very interesting… For me, it’s more of an educational experience than it is…it’s a very expensive educational experience, but it’s still a great way to learn about the venture world. 

So if you have the ability to experience angel investing or venture capital investing through the lens of someone managing a fund, it’s extremely beneficial, in my opinion, especially for whatever industry you work in, like fintech or PropTech, for example. 

So I’ve learned a lot about my industry by doing that. 

– Got it. 

– Outside of that, I would… You know, I’m not doing it for the returns at the moment. 

– No. Actually, that’s important to say, because I was a member of Hyde Park Angels when I lived in Chicago, which is, like, an angel investing group that invests in early-stage Chicago area startups, and I think they’ve really grown since I was involved. I only did it for, like, a year or two. But it was totally about the experience and about networking. 

Like, they would raise a round for whatever company, and you know, people in the group could kind of volunteer to talk with the entrepreneurs and all this sort of… You might invest $25,000 or $50,000. Like, you weren’t doing it to get wealthy but just the value of networking and learning from other people, and for me, kind of soaking in the entrepreneurship culture. Like, when I’m around entrepreneurs, I’m just like, “Ah, these are my people.” 

It just energizes me, and I have fun, you know. So I think that’s a totally valid way to approach it, and so anyone who’s doing that, it’s always a good time to do angel investing or VC investing. But what about then from the macro perspective? What if now…you know, close your eyes, you’re in charge of the Yale endowment fund or, you know, pick your alma mater, you’re in charge of your alma mater’s endowment fund. 

Are you saying we need to increase our allocation to venture in 2024 with new allocation or decrease it? 

– Gosh. I think because of the fact that you have so many privately held companies staying private for so much longer, you would be doing a disservice if you’re not proportionally increasing your allocation to venture capital at the same rate that companies are staying private. 

So the fact that there are so many more private companies, to me, means that there’s significantly more alpha in the private investing world, and it would be a disservice to your endowment to not be increasing your allocation to venture. 

– That’s interesting. So essentially, as the proportion of private equity, including venture capital, its relative size relative to public equities increases, then your allocation to that asset class should increase proportionally. Well, that’s a very simple but incisive point, Saira. 

Well, I want to get to secondaries now, because, I mean, here’s the thing, right, what we just talked about is only applicable to, like, 1% of our listenership, you know, whatever percentage that manages institutional capital. And I know we have some institutional investors, allocators who listen to the show, but we also have a lot of individual investors. 

And so, that’s where I think the landscape has really shifted and where there are new opportunities even in the last couple of years that didn’t exist previously. So, Saira, let’s talk about those. What are we really talking about? We’re talking about the secondary markets. Is that the easiest way for an individual investor to access venture? 

– Yes. So I think, an individual investor even, it’s a little bit difficult, because, unless you’re block trading, unless you’re doing a significant amount of capital, you’re still not going to get an advantageous price on a private market company. You really have to have the representative company to be able to access that. 

You know, I’m obviously biased. 

– Sorry. To just follow up on that, then, the secondary market in venture, it’s like semi-liquid then, right? Like, it’s not truly liquid where everybody’s getting the same price and where there’s hundreds of transactions a day for each listed issue. It’s still fairly illiquid, it’s just not totally illiquid. Is that maybe the way that we should think of it? 

– Yeah. I mean, I liken it to the derivatives world, which I know we’ve talked about previously, but that was an industry that I started my career in. And you have to know the right people. You have to have the right contracts in place. You have to have the correct access point in order to even get into that market. It’s the same thing with secondaries. Simultaneously, the ask from someone selling in the secondary market is typically going to be some type of price that is beneficial to the seller, which means two things. 

– They’re smoking “hope-ium” with their ask in prices. 

– That’s a great way of thinking about it. Yeah. I mean, there’s two prices, prices that are out of this world that nobody is going to pay for and prices that are ridiculously high. And the question is, can you validate the price that’s ridiculously high because you truly believe in the underlying company? Well, if you’re just coming in and you’re doing that secondary transaction, you know, once or twice a year, you probably don’t have a great pulse on the underlying industry, on the underlying market. 

So, how do you actually figure out whether or not you want to invest in the secondary market? 

– So this is not, in any way, easy. It’s not, in any way, something that you would want to dabble in. I mean, is that fair to say? You know, like, because I feel like… 

– Again, from an educational perspective, I would be lying if I said I haven’t. But I, A, don’t recommend it and, B, have only been burned. So, from an individual perspective, I don’t recommend it. 

– So then, okay, as an individual investor, unless I really have my fingers on the pulse of a specific industry or of a group of startups within an industry, I know what I’m doing. I have maybe some transparency on, you know, what this private stock is transacting at, maybe even in private transactions that aren’t occurring in the secondary market, you know. 

– Right. 

– Unless I have that kind of knowledge and insight, which most of us don’t, then how do I participate, right? Because here’s the thing, you know, you mentioned the two kind of asking prices are either, like, I forget the words you used, crazy high or, you know, slightly crazy, whatever. But they’re still probably discounted. There’s still probably, like, a down round or a down valuation, maybe, compared to the peak. 

Or are they? 

– My experience has been that the seller kind of names the price and then they’ll have a broker basically go out and say, “This is what this person is looking for.” And then you can put your bid in to see whether or not they’re actually going to accept what the final price is. Most of the time, the seller wins because there’s usually people that actually want to buy those secondaries, but it’s large amounts of capital. 

So you have to have a lot of funding behind you in order to get to a price that everyone’s going to be amenable to. Because even if they’re dropping their price, they still want you to take thousands of shares. 

– Understood. It’s almost like it’s not even worth negotiating unless you can, you know, buy half… 

– If you’re coming to the table with a couple of million bucks, I think anybody is willing to have a conversation with you. 

– Understood. Okay. Then let’s say I’m not willing to do that or not able to do that or don’t have the time to commit to that, but I still want to participate in venture, and I like the idea of there’s been a bubble, the bubble burst, a lot of these companies, you know, they’re still around. And I totally agree with you that the survivors of this vintage are probably going to be very resilient, awesome companies, right? 

It’s that pain, you know. Just like in previous bubbles that burst, like, the companies that survived them tended to be tremendous, high-growth, durable, resilient companies. So let’s say I want to participate. I’d love to get in and invest in venture at attractive prices, ideally, in a diversified way, right, where I’m not just investing in one or two companies. 

Is there a realistic path that I can do that as an individual investor? 

– Yes. And I want to disclose to all of your listeners that I didn’t pay you to describe exactly how we invest in venture at Fundrise. 

– Well, I mean, those are basic things… Diversification, right? I mean, if you can invest in an asset class without that, you’re going to have a hard time. 

– Yeah. I think that’s kind of what you want. You want diversification in so far as a different array of industries based on a core thesis that makes sense and will be almost like an evergreen thesis that you can continue to invest alongside. You want something that is probably, honestly, agnostic in terms of whether it’s growth, equity, or whether it’s late stage. 

You don’t necessarily want to invest in those early-stage companies if you’re trying to get a little bit of the risk off the table. And you also want to be investing with an entity that potentially doesn’t even have carried interest. 

– So, okay. So there are fund managers, essentially, or funds now that are… this is essentially what they’re doing. They’re investing just in secondaries or whether it’s early stage or mid or late. Like, how does that work in practice? 

We have asset managers, including Fundrise, and I know we’re not going to talk about, you know, the specific fund. I’m more asking about the general strategy here. This is very different. This is very different from a traditional VC fund where we’re going to actively out, we’re going to choose, we’re going to pick and choose 30 startups around a theme and invest in these 30 startups with series A investments. 

This is a lot more, we’re going to raise money, maybe with some kind of thesis or theme, but we’re going to be more opportunistic and diversified. Is that essentially the strategy here? 

– Yeah. I mean, I think it’s bifurcated. There’s the opportunity within the secondaries market, but it’s having flexible capital in general. So it’s being able to co-lead if you want to co-lead, it’s being able to, you know, be a follow-on, if that’s what the company is asking for, and it’s also looking at those secondaries and saying, “Hey, do you want some liquidity? 

Because we’re happy to give that to you,” which is typically not a solution that most venture firms are willing to offer but is becoming more prevalent. Particularly at Fundrise, that was a lot, like, one of the big things that we were able to do over the course of last year. But that flexible capital, I think, is the key. 

– Understood. So you know, if you’re an early-stage venture firm and you participate in a round and you invest, you know, depending on the size of the round, you invest a couple of million or whatever. You might be on the advisory board or, you know, you might be participating strategically, or with connections or, you know, not just money, but you’re actually in some way, shape, or form involved with the startup team. 

And it’s sort of like a two-way street kind of a thing, right, where the entrepreneur meets with the fund or the GPs of the VC fund and realizes like, “Wow, if I get the connections or, you know, some of the strategic help from this team of GPs, that’s going to be really helpful for me as an entrepreneur.” 

And the GPs go, “Wow, you know, we can make some introductions that’ll really help this entrepreneur and will help this startup, you know, beyond just the money that we’re investing.” On the secondary market, it feels like it’s a little different, right, where it’s not necessary. It’s more like a remarriage or a second marriage, or something, right? It’s, “Well, you know, you didn’t participate in our initial round,” or whatever, but now, a couple of years later, you’re buying this equity on the secondary market. 

So, is it the norm then to participate with the actual startup, like, to be on the advisory board or, you know, to have that kind of two-way communication that would typically be the norm with, like, an early-stage startup between the GPs and the executive team? 

– So I can’t speak specific to early stage just because that’s not how we invest. I can say that we’re always a strategic partner. So I think that’s the nature of who we are. We select companies that we find useful, whether it’s to our specific sector or globally, as a whole, and we actively attempt to participate as, you know, a strategic partner to everyone. 

Non-board seat, however. It’s typically not how… Well, that’s not how we’re able to structure, but I would think that that’s typically not the case for anyone that’s entering with a smaller check. 

– Got it. So it kind of depends. If you’re a bigger investor and you’re able to offer something of value as a strategic investor, then you would have that, you know, kind of two-way communication and potentially strategic assistance. But if I somehow invest 25k in some startup in the secondary market, it doesn’t mean they have to answer my phone calls, right? 

– Yeah. And I mean, when I say smaller check, it’s usually 5 million to 25 million. I don’t…25k would be directly into a fund, I would think, you wouldn’t be able to go directly onto a cap table at that level just because it’s far too small for a company that will probably have limitations on their cap table. 

– So, what is the range, then? So you’re talking about the transaction range of these investments. Either within Fundrise or just within the market, in general, like, what kind of transactions have you been involved in or, you know, would be typical in the secondary market? 

– Maybe from a few million dollars to all the way north of $25 million. You know, if you’re trying to angel invest, I think that’s a different scenario, but you could easily do a fund of funds with a group of friends where you could put together, you know, a million-dollar vehicle that you could then invest into, like, something bigger. But that I have slightly less experience with. 

I’ve done it myself with a smaller check, but I don’t have the same experience in terms of what gets done outside of that. 

– Totally. Yeah. We’ll keep that on venture. Maybe we can talk about angel on a different day. When you mentioned, you know, that you like to have flexibility or that the flexibility is valuable, could you give some examples of that? Like, what kind of opportunities have come your way or have you seen, you know, in 2023? Because I know you guys were very active in 2023, as some other managers were as well. 

What kind of opportunities are you seeing where it kind of pays to be flexible? 

– Yeah. I mean, I think being flexible means that, if you’re looking at Fundrise specifically, we have four of the five companies from the Forbes-Bessemer Cloud 100 in our portfolio. We were able to invest in data infrastructure. We’re able to invest in ML and AI. 

We’re able to invest in software and being agnostic in terms of whether we’re co-leading, whether we’re follow-on, whether we’re doing secondaries. That flexibility has been immense in getting us in front of some of the top companies in the world. And then there’s the other aspect, which is that we are able to also invest in funds. So we are able to invest in some of the top funds in the world as well. 

I’m trying to think what else. And I guess… 

– So yeah, sorry to interrupt. I mean, that, to me, is actually a really big thing that you can co-lead around and do follow-on or do secondaries, I mean, because that really means, as contrasted with a normal VC fund, any kind of attractive deal where you’re like, “Well, that looks like a great company. That’s a great valuation we want to get on.” 

You’re not blocked by having that mandate that we can only look at a certain particular kind of deal. 

– No, not at all. And we’re stage agnostic as well. So it’s basically, any company that interests us, we’re here to talk to them. 

– Got it, okay. And sorry, I think I interrupted you there. How other ways are you flexible aside from just, you know, the types of deals, you know? I guess, the industry being industry agnostic, that’s a pretty big point of difference with the traditional VC fund that usually has, like, a focus on a particular industry. 

– Yeah. I mean, I say that we’re somewhat industry agnostic in so far as we have stuck to what we believe to be the next, you know, FAANG companies. So, that AI/ML space, the data infrastructure, which we think is very related to the AI/ML space, and then, again, software, but we’d be open to much, much more. 

It’s completely dependent on the company, frankly. 

– That’s interesting, though, the sectors that you’ve identified that you’re bullish on. Do you mind sharing any of the sectors? Because you actually alluded to this earlier in the show, that there were some sectors or industries in VC where even the GPs themselves said, you know, I think it was hardware maybe that, “Hey, we’re just early-stage funding this. This is not an efficient market, and we don’t think, you know, this is a…we don’t even want to raise money here even if we can because we don’t think it serves our LPs.” 

Are there any sectors you’re bearish on in venture capital? 

– That’s a tough one to answer. 

– Maybe you can tell me off the air too, you know. 

– I think there are certainly sectors that have been overhyped over the course of the last couple of years. That’s not to say that they aren’t worth investing in. That’s to say that the investments were inflated. 

– What are those? So they’re still worthwhile, but these industries were overhyped. Do you mind sharing a few examples? 

– I think fintech is probably the one…I mean, I’m sure it goes into everyone’s mind when I said that, and that’s the one that was probably the biggest bubble. 

– Got it. That’s funny you say fintech, because I’m an angel investor in fintech. But I will say this, we look for bootstrapped companies, right, not companies with big valuations. So, I mean, to me, that’s where venture capital is so different. That’s where I personally have, in a way, I have a hard time wrapping my head around it. 

Even though I’m an entrepreneur, I’m wired, I think, just to love entrepreneurship. My mind is always, “Okay, new startup. How do we break even by month 12? Or if we want to be really crazy, how do we break even by month 15 or month 18?” And so these venture-backed startups, and so with my participation in fintech, like, that’s very much my mindset, bootstrapping and getting traction quickly. 

It’s hard to wrap my mind around, I think, you know, some of these companies that are scaling and just running at a loss for years upon years upon years. So, why, ultimately, as an investor, do I want to invest in things that are cash flow negative if there are other investments, even on the Fundrise platform, that are cash flow positive? 

– The opportunity for these companies to be huge, I think, is the main reason that I find venture so interesting, and you know, cash flow negative is an interesting term because there are lots of, you know, companies that have gone public that are not cash flow positive. 

And I think it’s a big criticism that a lot of people have about venture-backed companies. It’s a little bit unfair. Because if you dig into the accounting of some of these public companies, they intentionally go cash flow negative. There are tax benefits to doing so. And if you’re a really, really, really well-tuned finance arm of a private company, you could probably argue the same thing in order to save on some taxes for yourself. 

So that’s something that pops into my mind every time I hear that. That being said, the opportunity in venture is just so much larger, so many companies staying private for so much later. It doesn’t make sense to only invest in public markets at this point. And that is the biggest opportunity to me. 

– Yeah. I mean, it’s a fair point. I love micro private equity. I love bootstrap startups. But we’re not going to bootstrap the next Zoom or, you know, Google or Apple, or whatever. Sometimes these big visions, especially in technology, they need big investments, and they’re big bets. But to your point, that’s how you get the unicorn. 

And I think, if it’s a 100x unicorn, it’s still a unicorn. Regardless if it stays private or goes public, you know, that’s where you see those kinds of returns, is in venture. And, Saira, this is just a fascinating discussion. I learned a lot, I have to say. Even though I know, you know, GPs in venture, but you know, your perspective here has been invaluable. 

We’re almost out of time, but where can our audience of investors go to connect with you or to learn more about Fundrise and everything that you do in venture capital? 

– Sure. If you want to check out Fundrise, I have my own special link, which is, so S-A-I-R-A. You’re welcome to sign up there, or obviously, just kind of click through, check out all of our cool investment thesis. 

I love getting feedback online as well. My handle on all of the socials is at @sairarahman, so my first and last name. 

– Okay. And are you still on Twitter or X, or whatever they call it these days? 

– Occasionally. 

– Fair enough. Well, I’ll be sure to put all the links on the show notes, which are always available on, including your special tracking URL, Is that right? 

– Yeah. 

– Saira, thanks again for joining the show today. 

– Thank you so much, Andy. Have a great rest of your day. [music]

Andy Hagans
Andy Hagans

Andy is a co-founder of WealthChannel, which provides education to help investors achieve financial independence and a worry-free retirement.

He also hosts "WealthChannel With Andy Hagans," a podcast featuring deep dive interviews with the world’s top investing experts, reaching thousands of monthly listeners.

Andy graduated from the University of Notre Dame, and resides in Michigan with his wife and five children.