Funds Pitching SpaceX Rush to Lure Retail Investors Before IPO
Retail investors desperate for exposure to companies like SpaceX, OpenAI and Anthropic PBC are manically snapping up shares in a group of funds that have exposure to the hottest names in private markets.
One of the closed-end funds surged last month to about 3,000% of the value of the underlying assets as the allure of the tech firms drives a frenzy among mom-and-pop investors akin to the meme-stock era. For the sellers, there’s a limited window of opportunity. With the tech firms fast heading for initial public offerings, the exclusivity angle will soon disappear.
It’s the latest example of what looks like a speculative rush into private markets, where more and more amateurs are jumping into often opaque and illiquid assets without fully knowing the risks.
The issue is particularly worrying given the broader turmoil taking place in private markets, where valuation concerns have shaken some investors and funds have had to restrict redemptions.
The pitch by groups like Fundrise Innovation Fund LLC and Robinhood Ventures Fund I is access to names traditionally reserved for venture capital and institutional investors. They say they are democratizing markets, taking consumers behind a velvet rope to a room of fresh investment opportunities. Powerlaw Corp., another fund, is also planning to list and is awaiting SEC approval.
The closed-end funds own stakes in marquee tech companies, and offer retail investors the chance to get in on the action by buying shares in the funds when they float.
“It makes sense for the funds to go public before the actual company listing,” said Owen Lamont, a portfolio manager at Acadian Asset Management. “The time for them to do so is when the underlying asset is scarce, not plentiful.”
Some tout themselves as venture capital for the public market. However, rather than early-stage venture bets, they bundle later-stage, pre-IPO company stocks into a basket. The average cost — including management and other fees — for four funds offering big-name tech companies is 3.6%.
The surge in some funds’ shares has raised concerns about stretched valuations and whether investors are overpaying for a form of arms-length connection to hyped-up companies.
Retail buyers also face counterparty and execution risks. Some of the funds’ holdings are acquired by special purpose vehicles or via forward contracts. OpenAI has been critical of these transactions, warning that it can rescind them or even cancel the underlying shares.
Lofty Premiums
For closed-end funds, one key metric is the value of the basket of shares they hold, known as net asset value. With a fixed number of shares, the fund can trade above or below that NAV.
At one point after Fundrise took its Innovation Fund public, it was trading at nearly 30 times its most recent net asset value in late February. If each portfolio company was to be valued on the same multiple, that would imply, for example, a near $40 trillion figure for SpaceX, based on its estimated February valuation of $1.25 trillion.
“Is it mathematically possible that the price of SpaceX will rise enough to justify that premium? Yes, but highly unlikely,” Lamont said.
Fundrise, which previously focused on real estate before turning to tech investment, said its mission is “to democratize private markets.”
On the Innovation Fund’s inaugural investor day in February, Chief Executive Officer Ben Miller used similar language. One screen behind him read: “Arc of finance bends towards democracy.” Miller declined a request for an interview.
Ahead of the fund’s IPO, some investors weren’t convinced about the move. Jonathan Maula was among those who voted against it, worried that the shares would “swing like crazy.”
He was right. Fundrise began trading at $31.25 on March 19. Investors piled in, and the shares peaked at $575 on March 25. That’s a 3,000% premium to the per-share NAV in late February of $18.26.
They then dropped after a report from a short seller, which pointed to the huge premium. Citron Research estimated that the fund should be trading at $26 per share. It’s currently hovering around $85.
On a Reddit forum on Fundrise, there’s debate about the moves, as well as snark about “AI hype” and “absurdity.”
“If you’re buying Fundrise at a 2,000% premium, your only hope is that someone’s going to be silly enough to buy it at a bigger premium,” Jack Shannon, an analyst at Morningstar, said at the time of the price surge. “It’s a hot potato. They’re thinking – I’m not going to be the last one holding it.”
Maula, who runs a financial planning firm, says for those who bought at the top, “this is like GameStop all over again. Just people chasing and no idea what they’re doing.”
Another closed-end fund, Robinhood Ventures – part of Vlad Tenev’s Robinhood Markets Inc. – also floated in March. Gains haven’t been as dramatic as Fundrise; shares are currently trading at about a 47% premium.
In a presentation this year, Tenev said the fund is addressing an “iniquity in capital markets.”
Closed-end fund Destiny Tech100, which went public in 2024, also saw its shares being traded at a near 2,000% premium in the first weeks of trading. The share price is now trading at about a 49% premium.
For some of the funds, the access to the portfolio companies like OpenAI comes with caveats. While many institutional investors own direct equity in big startups, others, including Fundrise, have to find other ways in.
One is buying into a special-purpose vehicle along with many other investors. It’s these vehicles, not the funds, that own the company shares directly. Sometimes SPVs can have multiple layers.
At least 42% of Fundrise’s fund holdings are accessed via SPVs, according to a filing with the SEC. Documents from Powerlaw, another closed-end fund that’s awaiting approval to go public, show 86% of its investments are held via SPVs. A spokesperson for Robinhood Ventures says it’s so far only bought shares either directly from a company or existing investors in a secondary transaction.
In other instances, the funds acquire shares through forward contracts, via deals with a startup’s employees or shareholders for the promise of future shares.
Asked about the rise of the closed-end funds touting its shares, OpenAI said it doesn’t endorse or participate in any of the transactions such as SPVs, forward contracts or tokenized interests. It also warned that such actions may result in “invalidation of the underlying equity.”
“This is a case of closed-end funds claiming to have a legal contract with the underlying shares, whereas the issuers dispute it,” Acadian’s Lamont said.
