Fundrise founder and CEO Ben Miller visited with CNBC this week to discuss the growing business of providing retail access to private securities typically issued under the Reg D exemption.
Reg D requires an investor to be deemed “Accredited” – earning over $200,000 a year ($300,000 if married) or holding a net worth of over $1 million (not counting a primary residence). The rule has been widely criticized as it sets a financial barrier, rather than one based on acumen, thus disenfranchising many millions of potential investors. While Congress is expected to improve the rule at some point this year, the discriminatory rule has blocked most individual investors from investing in some of the most successful firms in the US.
As the exempt securities ecosystem and technology have evolved, an increasing number of small investors have been able to access private securities in well-known firms.
Fundrise, initially focused on real estate offerings, has leveraged its tech stack to enable smaller investors to participate in private securities through Regulation A (Reg A). Under Reg A, an offering must be qualified by the SEC, thus creating a higher degree of disclosure than a notice filing required under Reg D.
Miller reflected on the recent announcement by Republic of offering “Mirror Tokens” – digital assets that are tied to stock in private companies like SpaceX. Miller said Republic’s offering “makes no sense to me … it couldn’t be more different,” while noting the Fundrise offering actually holds shares in these private firms.
Miller said they have created the first registered venture fund by “going in the front door” of the SEC.
Miller said their fund has invested in firms like Canva, Databricks, OpenAI, and other tech firms “like any other venture fund.”
Miller predicted that tokenized investments in private firms would allow these assets to be traded like crypto, and these companies do not want that. For the Fundrise fund, investors are allowed to redeem on a quarterly basis.
He noted, as many others have, that today, private firms strive to remain private for as long as possible. This is due to the cost of complying with the requirements of being a public company.
Miller shared that “if MAG seven had not been public, if they had been private companies … the total return for the last 15 years in the S&P 500 would have been 5% a year… could you imagine the wealth creation that would have been lost if those companies had remained private.”
Miller makes an important point as retail is blocked from participating in many of these private firms.
His statements highlight the ongoing debacle of policymakers undermining access to wealth creation brought on by the onerous rule-and-regulation approach foisted upon public firms by regulators and elected officials, many of whom do not understand markets.
Miller states there have been “trillions of dollars” in lost wealth because of bad policy, something Fundrise is attempting to fix.