Summary of Episode
#65: On this episode of Startup Savant Podcast, we hear from Jesse Randall, founder of Sweater Ventures, about his journey to create a venture capital fund that is open to anyone, regardless of wealth or accreditation status. He explains how the Securities and Exchange Commission (SEC), once created to protect everyday people from investment scams, has now become outdated and condescending towards smart individuals who are not wealthy. Jesse also shares how a bold marketing choice early on helped the startup to build a 60,000 person waitlist.
About the guest:
Jesse Randall is the founder and CEO of Sweater Ventures, a startup allowing unaccredited investors participate in venture capital. Prior to this Randall founded several companies including International Prodigies, EnergyBLOC, and Raveil.
Podcast Episode Notes
[1:38] Sweater made a waitlist of 60,000 people through a risky marketing campaign.
[8:31] Using humor and relatable branding, the waitlist for Sweater converted successfully and quickly, with people remembering the company after a long time.
[10:51] Sweater is a venture capital fund that anyone can join. It aims to democratize venture capital, allowing more people to participate in funding and benefiting from startups and new technologies.
[13:41] Jesse and Ethan share some general venture capital terms and their definitions.
[18:47] The speaker discusses the history and purpose of the SEC and shares their journey towards challenging the accreditation rules that prevent some individuals from investing in certain opportunities.
[23:12] Jesse shares his story of growing up in Wyoming without a privileged background, having to scrape along and balance work and family.
[29:12] Sweater offers diversification through investing in a large portfolio of companies, though investing in venture comes with a high volatility and risk of complete loss.
[35:46] Sweater is a VC firm that invests at seed stage and has a unique value-add of a tech-powered community of 40,000 people that can promote their invested companies.
[41:40] Sweater aims to build big things with stair-stepped advantages, launching multiple funds to help founders work their way through the precarious pre-seed to series A stage and to open up the asset class for regular investors in the future.
[45:54] Finding alignment with yourself and being truly committed to building something is crucial. It's easy to fall in love with an idea, but true commitment is rare at the beginning. Money and fame are shallow reasons to become a founder. The flame inside a founder is what makes them successful.
Full Interview Transcript
Ethan Peyton: Hey everybody and welcome to the Startups Avant podcast. I'm your host, Ethan, and this is a show about the stories, challenges, and triumphs of fast scaling startups and the founders who run them.
Our guest on the show today is the founder and CEO of Sweater, Jesse Randall. Sweater is a VC fund with a distinctive twist. They've opened up the opportunity to invest in a venture fund for everyone, not just accredited investors. We're gonna get into how they were able to pull that off and a ton more stuff, but before we get started, I wanna remind everyone that Startup Savant is a part of TRUiC, which is a suite of sites dedicated to helping people start and run businesses. Startupsavant.com, of course, is the place where we put everything for founders of scale-focused startups.
So go check that out when you need a boost for your biz. All right, now that we've paid the bills, let's get started on the reason we are all here to chat with Jesse Randall of Sweater. Jesse, welcome to the show.
Jesse Randall: Ethan, great to be here. Thanks for inviting me on.
Ethan Peyton: Hey, thanks for coming on. This has been a long time coming. I found Sweater online like a year, year and a half ago, and I got excited about it, and I was like, hey, we should have them on the show. And, you know, long story short, it's gonna be a terrible story, but long story short, here you are. So I'm not allowed to tell stories anymore, but that's why we brought you on. All right, so we were actually just chatting before the show about something that you, that you did at the very beginning, actually like pre company, and that was to build a wait list for Sweater. Can you give us the story of this wait list?
Jesse Randall: Yeah, for sure. You know, it might be good to kind of like touch on where we ended and then I'll give you context of why we did it and how we did it. I'll try to keep it short.
Ethan Peyton: I'll let you drive.
Jesse Randall: Yeah. So ultimately we ended up with a wait list of about 60,000 people that we built over the course of about, you know, nine or 10 months, more or less officially. You know, originally we were only supposed to be building that wait list for like four to six months. And it just ended up getting drawn out for a variety of compliance and, you know, SEC official registration reasons.
But you know, it was, it was an amazing outcome and it was bigger than what we anticipated when we first started the idea of that. The context is that Sweater is a registered fund and you have to go through this very long, arduous process to actually register the fund with the SEC. It costs half a million dollars, could take you, well, what we thought was four to six months ended up taking us 11 months to get through this process.
Ethan Peyton: Of course.
Jesse Randall: And in the meantime, we were like, well, we want to be able to talk about what we're doing. We want people to sign up and to be ready when we get this approval from the SEC so that we can immediately just jump start this thing. And so we wanted to build a wait list. Like most people you've heard the stories of Robinhood building their massive waitlist before they launched and everything and we thought you know we can we can pull that together and so we're going through this process with the SEC and getting that rolling and we decided to build like kind of patchwork together a set of tools that would allow us to bring people in and sign up and then give them a unique URL that if they shared it then they could move their way up in the waitlist by sharing it with friends and family that actually click through and then also signed up on the waitlist.
It was a great viral effect. But I think that the core inside this maybe, and I didn't mention this to you earlier, is the, I call it the nugget that was at the center of this campaign, is one of the biggest risks I've probably taken in my day's building companies. So we had this problem, and I think a lot of founders were related to this, but Sweater is inherently kind of complicated in what we do, how we do it, the context of it. Most people don't really recognize or are well educated on what venture is.
And before we started this wait list, if I spent an hour with somebody, they were sold. They knew everything about it. I could walk them through it. It was amazing. But if I only had 60 seconds, I would get a lot of like, oh, that sounds kind of cool. I don't know what you're talking about, you know, kind of looks from people. And you know, we were gonna go direct to consumer and we're like, okay, if we're gonna go direct to consumer, we have to be able to tell this story in 60 seconds or else we're dead.
And so we went to some friends of ours that did kind of like new age, infomercials, you know, but like built for the internet. So you think like Dollar Shave Club and Squatty Potty and Pooperi and like a lot of these ones that have become kind of famous. And we were like, well, those are a little edgy maybe, you know, I mean, we're doing venture capital. It's an investment. It's not, you know, spray for the toilet, you know, when you're at your friend's house. Like it's a little bit of a different category. Can we leverage humor for this?
And we ended up working with these guys and this group out of Utah called Creatively, they're incredible, highly recommended. And we took a big swing. I wouldn't call it exactly scrappy because it was quite expensive. But we spent about 10% of the money that we raised for our pre-seed round just to create this video asset to tell the story. So it's a huge swing and as we went into it They gave us three options and it was kind of like a mild medium and spicy of like how edgy do you want to be? And I remember thinking like oh, we better go with a mild one. We don't want to upset anyone. You know, like let's like it's an investment. We don't want people to think we're not serious.
And I remember they actually like they pitched the scripts to us with people like taking different roles and they actually like role-played them and you know they did the mild one is like oh that was really good that explains it so much better than I do when I try to walk through it and then there's a mild one and they got a laugh out loud for me I was like oh that was actually really good in the middle there and then they did the spicy one and I was almost rolling on the ground it was so good but it was it was taking a punch right, making fun of the stereotypical venture capitalist, you know, just like big old white guys that are throwing money around and monkeys throwing darts at dart boards to make investments and like the whole thing, like we, it was over the top.
And I still remember thinking, we left that and I was thinking before I went in, we should do the mild one. And on the way out, I was like, we've got to do the spicy one because I don't want a false negative. That was this, this became like my, my beating drum, like, okay, if we do the mild one, it doesn't work I will always wonder if I had done the spicy one, would it have worked? And so we were like, yeah, no false negatives. If we're doing this, let's go. And we hit it and that became the core of this whole waitlist campaign. And there was really, there was a monkey in it. There was, I mean, it was, it was one heck of a production and it worked. It totally worked. So it was a combination of, you know, technology and good process and nurturing and building community. But it was also, you know, theatrics a little bit and, you know, creativity and humor, a lot of that. To capture the attention and the imagination of people that were new to the world that we were presenting to them.
Ethan Peyton: Yeah, I mean, you're just, you're generating interest for something that, you know, the people out there that are like in this world, they may see this opportunity as interesting in and of itself, but there's, you know, the long tail of folks out there who aren't like, you know, biting at the, or chomping at the bit, I think is the term, to like invest their unaccredited dollars into venture.
And I'm jumping the gun a little bit on kind of how venture, or excuse me, how sweater works, but like, Yeah, I think everybody could stand to get a little spicy. I was just at an event and they had a speaker and their pitch was that your brand should be loved by many people but hated by some. And that's the idea, you know, they put up the Apple logo and said, how many people have feelings about this? And, you know, half the crowd raised their hands and they put up the Dell logo and how many people have feelings about that and nobody, nobody did.
And I mean Dell, not that there's anything wrong with Dell, but it's just the brand positioning. So yeah, this idea that you're like, some people may not like this, but I think that's gonna make everybody else like it more. Plus you probably got some media off this. So when you say it worked, what is that? I mean, obviously it worked to create a buzz. It worked to create this 60,000 person wait list.
Jesse Randall: Mm-hmm.
Ethan Peyton: Was there any other effects that it… that you maybe either didn't see coming or that were just like an outsized win?
Jesse Randall: Mm-hmm. Yeah, well, I mean, I think that... When I say that it worked, one of the effects is how well the waitlist converted. I mean, we had folks on the waitlist for almost a year before they got to actually come in and participate in the fund itself. And so what worked was that people understood who we were, the problem we were solving, how it related to them, and how it could affect their life, all through a thread of humor, really. And so like you captured their imagination in a way that actually got them to buy into your mission, not just buy in enough to give you an email address, but buy in enough that they hung around and that they continued to stay involved. And ultimately they actually did get involved by putting their money where originally their email was, right? They actually…
Ethan Peyton: Right.
Jesse Randall: …came in and joined us. And so that's what I mean by the way that it works. Cause like I've, I've worked with lots of groups that put together wait lists and then they just convert like garbage, you know, and the open rates are terrible and you know, people don't remember why they even signed up, but you know, you contact, well not now. It’s been, you know, over a year since we last had anybody new on it. But at the time you contact anybody on that wait list and say, hey, do you know who Sweater is and why you joined this wait list? Everybody knew, everyone remembered.
And that was part of the beauty of, you know, that particular video that we made, as well as the name itself, you know, is we get asked all the time, where the heck did the name Sweater come from? The short answer is that the finance world is old and stodgy and very stoic and you've got Black Rocks and you have Andressons and you have Benchmarks and you have whatever, right? T-Row price, I mean, just like stuff that, it's just so boring. I mean, it's like built to be trustworthy. And we were like, you know, we can be trustworthy, but we can also be memorable.
And we wanted something that people could relate to. And you know, it's kind of a typical, you know, marketing rule of thumb that someone has to have 10 to 15 brand exposures before they can recall your brand voluntarily. And for us, it's probably two to four. It's so much faster that people remember us. They know who we are. They know what we're associated with. We are clearly differentiated. It's like a combination of all that stuff just made it very effective.
Ethan Peyton: All right, let's go back to the basics. I think it's time we told people very specifically what sweater is, what sweater does, and what makes it different than other venture funds out there, so can you give us the breakdown?
Jesse Randall: Absolutely. Yeah. Sweater is a venture capital fund that anyone can participate in. You don't have to be wealthy. You don't have to be well connected. You don't have to have an accreditation status. You don't have to have a rich uncle, nothing like that. Anyone can download the sweater app and participate in a professionally managed venture capital fund.
So for context, you know, VC funds are the one, are the, the entities that fund the upcoming generation of, of new technologies and you know, the things that shape the future that we all And we're all using and leveraging venture-backed technologies and companies all the time without even really realizing it. And so typically it's this, you know, 1% class that's putting the money in and making the decisions of what gets funded and what doesn't. And we fundamentally believe that everyone should be able to participate in determining who those companies are, as well as benefiting from the growth that those companies produce and the wealth that they produce.
So today anybody can go and download the app. You go in and you can become a part of a venture capital fund in 10 minutes and be able to put in all the information that you need and you can invest instead of a $500,000 minimum investment, which is what typical VC funds have, even for small funds, and we make it a $500 investment instead. So the vast majority of people can afford that. They can get in and there's neat features like you can set up recurring investments and every month you can put in another 50 bucks or another 500 bucks.
We’ve got a doctor that continues to put $2000 a week and just continues to invest consistently as his cash comes in. You know, it's just really interesting to see how people leverage it. But it's more than just an investment. And this is one of the things that's so important to Sweater is it's a community. It's a feeling. It's a movement that people can relate to and that they want to be part of their brand, their personal brand and be associated with it. So we give the example that it's like having courtside seats to the game of venture capital. You don't get to shoot the ball and you don't get to coach the team. But we will give you a tour of the locker room. And you get to meet the players and you get to be right there. And you get, it's almost like you're a part owner in the team, right? Because you get benefit of everything that happens. So, you know, we've taken venture capital, we've simplified it, we've lowered the barrier, and we've provided an experience that everyone can really appreciate and participate in.
Ethan Peyton: So these everyday people that are sitting on those courtside seats, I know you said that they can't, they're not coaching the team, they're not making the shots, but I'm curious if they… are they voting with their dollars? Are they in any way having input into what investments are made? Like are they replacing and or acting as the general partner or the limited partner or either? And actually now that we've brought it up, would you mind giving us a quick definition of GP and LP?
Jesse Randall: Yeah, yeah, let's do a little VC 101.
Ethan Peyton: Let’s do it.
Jesse Randall: I think that would be good for the audience. So for those that maybe aren't as familiar with the way the venture capital world works, a VC fund is made up of a few different layers. So the VC fund itself is run by general partners, which is GP for short, and they throw that around a lot. I'm a GP of a fund. That means that you raised the fund, and it typically means you're the one that is actually investing the money out of the fund into startups.
So when a startup wants to raise money from fund XYZ, they're pitching, eventually pitching the GP of that fund who's gonna make the final call of whether or not to give them money. So that's like the front-end experience that most people think of venture capital as. But there's another layer behind the scenes that that GP has to turn around and they have their own table that they're behind because they raise money from limited partners or LPs who actually invest the money into the fund that makes the fund possible at all.
A typical VC fund can only have 99 investors, you know, as a general rule. There's a few exceptions to that. But this is one of the reasons that the minimum investments for a VC fund are so big, because if you want to raise a $100 million fund and you can only have 99 investors, you can run the math and see that like, well, your minimum investment, you know, like it's got to be pretty high. Even if you have anchor investors that put in $10 million, it's going to be pretty hard to have a minimum investment that's less than half a million. And if you're talking about a $500 million fund or even bigger, this is where limited partners just naturally the way the system has been set up, it locks out the everyday person.
So limited partners have to be accredited investors for sure, but most usually they are qualified investors, which means that they've got at least five million and by some definitions more like 25 million dollars of investable capital. And you're talking about pension funds and insurance companies and you know family offices, all these different types of groups that make up LPs. So in sweaters sweater's context, if a traditional VC fund can have 99 investors and the typical minimum investment is half a million dollars, sweater we could have you know 900,000 investors, we could have you know 9 million investors and have the minimum investment be $500 a piece. That's the biggest difference between us. Otherwise you know the relationship between us as a fund and the founders that are out there, we're like any other VC funds to the founders. They come to us, they pitch us, we’re looking at lots of companies. We have a thesis and we invest and cut checks into the companies that we believe are the highest potential.
Ethan Peyton: All right, so then these people, these everyday people, these non-accredited investors, they are essentially acting as the…they are funding these venture deals that you all will be making. So they're kind of acting like an LP. Would that be fairly accurate?
Jesse Randall: Yeah, so actually I'm glad you called that out. So in a traditional VC fund, the LPs don't make any investment decisions. They're putting their money in the fund and they are giving all of that decision-making power to the GPs who are actually talking to the founders and living day in and day out in talking, and actually assessing opportunities and making investments. The LPs, it's not their full-time job. Their full-time job is to manage an entire portfolio of investments. And this one check to this one fund just one of dozens, if not hundreds of things that they're involved in.
And they are relying on that GP to make the decision. And it's the same thing for us. And we found it's a very similar kind of feeling from everyday people. They don't have the time to go and dig up opportunities. They don't have time to conduct due diligence. They don't have good connections with people and other VCs that can bring them opportunities. And they want someone else to do it for them professionally. And that's what we are. We are the professionals and we represent you on the court or you know as the coach or whatever and we use the app to give you that feeling of like you're there even though you're not actually the one picking and choosing where your dollars go.
Ethan Peyton: Gotcha, that makes sense to me. So then let's talk about the SEC, everyone's favorite topic.
Jesse Randall: Hey, I love the SEC.
Ethan Peyton: Yeah, this accredited investor rule and qualified investor, these things have been around for a long time. And it really doesn't seem like the SEC has a whole lot of interest or real reason to back off these things, at least back off of them easily. And dealing with federal agencies is just historically not the cleanest, easiest thing that's ever been done. So that's a lot of hoops to jump through to build this business the way that you built it. What made you decide that all of that trouble was worth it?
Jesse Randall: Well, why was the trouble worth it? That is an interesting question. I mean, I think that...
Ethan Peyton: I mean, you could have made a bakery and sold some cookies and that would have been real easy.
Jesse Randall: Oh yeah, in retrospect, yes, that would have been much easier. Although I don't know, it's got a different type of grind. I don't know if I can make cookies every day. I've actually got some good friends that bought a bakery and did not like their lives for a long time. So lots of respect to people that own bakeries. I mean, let me just make a comment on the SEC and then I'll tell you how, how we got to this point. And like how we decided that this is what we wanted to do.
So the SEC, I mean. They were created, the SEC as a function was, as an agency was created to help protect regular people. It goes, you know, I mean, it goes back 100 years. The laws that specifically govern accreditation and all that kind of stuff, it came out of the Great Depression, you know, it was 1930s, early 1940s. Tons of people got screwed in the Great Depression. You know, there were slimy characters all over the place. They could literally come knock on your door, say, hey, I've got an investment for you. Take your money and then just disappear.
And so there weren't a lot of rules in place to help govern the everyday folks. And 75 years ago, people were generally less educated. They didn't have as much savviness around what it meant to be an investor. There was more inherent trust in society. There are all kinds of things. So the SEC and these laws that govern all of this were put in place ultimately to protect us all. And at the time, maybe that was good. But today, it's totally different. The general education level of the populace is much much higher than it used to be access to information is obviously streamlined and we can get to just about anything and there are charlatans out there they're just in a different shape right and they they play in places where the SEC is not because if you get caught by the SEC you're dead, right? I mean they'll lock you away for a long time white-collar crime is a nasty thing.
So in terms of our journey to get here knowing that the SEC has good intentions and that you know it's really that to help protect us. I think that there are some deficiencies in that. So my story began on this about five years ago. I actually went to go start a regular VC fund, ironically. It was in the southwest. It was just gonna be a small fund. I wanted to make an impact in this place that I'd lived for about seven or eight years at the time. I had a lot of passion for the region. And as I started talking to potential LPs, some big checks that could come in and put in those anchor checks and you know give me confidence and credibility to be able pitch others. I was told that I wouldn't be able to invest in my own fund because I was not accredited and I was like wait a minute I'm the guy running the fund how can I not invest in my own fund like that's kind of silly and I wasn't really that upset about it because I knew about accreditation rules and there were technically some ways you kind of work your way around it I could have gotten money in there somehow but it was a mess.
But part of my grad work is in policy and rule of policy is to research and understand the context that a law was passed in and that's when I really dug in. I went back to these laws from the 1930s. So there's the 1933 Securities Act, 1940 Investment Company Act, and a couple other ones that are kind of tied in there. And when I dove in I didn't like the justification of what it said because it basically says in so many words if you're not wealthy then you're probably not that smart so you need to be protected. And it was just a little bit condescending to me and I was like all the good intentions of the world, but like this is wrong. Like if this includes me, it includes all these other smart people that I know, then this is archaic and it needs to change. And that lit a fire in me, you know?
So I dropped the idea of doing traditional fun and just started plowing down this path. And, you know, there, there's a lot that happened, but the short answer is it took two and a half years to finally get an audience with the SEC, with the right people at the SEC. And, you know, we, we worked it out and we figured it out, but it was by no means, um, an easy path and, you know, I've been questioned many times why I would spend two and a half years of my life just to get a meeting But that's effectively what happened
Ethan Peyton: Were you funded at that point when you started this digging into why these rules were put in place and starting to try to get an audience with the SEC? Did you have backing at that point, or was this something that you funded out of your pocket? I don't know.
Jesse Randall: I was definitely out of pocket. Um, I can't tell you how many sideways looks and your crazies I got over two and a half years. I mean, I think there was two different occasions where I attempted to raise some money and every time it was like, there's no way that's possible. People have tried this before. Uh, the sec would never change this. There's a reason that, I mean, like really some condescending stuff. There's a reason that those people aren't allowed in venture. I mean, like…
Ethan Peyton: Mmm.
Jesse Randall: …some real eye-openers. It was crazy to see people's attitudes. But no, nobody would give us any money. Um, I'd been out on my own for about two years at that point. You know, I was self-sustaining. I had a consulting business, a lead gen business I was doing, and I kept doing those and just kind of like kept the lights on, you know,
Ethan Peyton: Yeah.
Jesse Randall: I was spending 25 to 40% of my time, like working these angles and trying to advance and the other side, you know, I'm just trying to like work some deals and pay the bills. Um, you know, a relevant part of my story is that, um, I grew up outside of Jackson. I look out and see the Grand Tetons out my window every morning.
Ethan Peyton: Nice.
Jesse Randall: I grew up chasing cattle, building barbed wire fences, bucking hay bales. I mean, that was my life. I have no rich uncle. I have no connections into this space, nothing. Everything that I learned about this, I did from the ground up and did through research and being smart and finding smart people to help me. I never could have done this alone, ever. So along that path, it's... there's a reality to it that I am that unaccredited investor. I am that regular person. And so when it came to actually funding this thing, I had no rich uncle that was gonna give me 100 grand to like eek my way through this as I figured it out. Angel investors didn't wanna talk to us. I didn't have an Ivy League background. I hadn't sold the company before. You know, I didn't have these things that could have helped me bring in some money. So I scraped along and figured it out. And along the way, I mean, we had our fifth child during this process you know so like
Ethan Peyton: Oh, just the fifth?
Jesse Randall: Just a fifth, yeah, yeah. No big deal, right? Had to upgrade to a minivan, the whole thing.
Ethan Peyton: Of course.
Jesse Randall: So I mean, there was significant family and reality pressure there of needing to provide as well. So it definitely wasn't an easy path. It wasn't a simple choice. I put off a lot of career ambitions in order to pursue this and I'm grateful for where we're at now, but there was sacrifice along the way for sure.
Ethan Peyton: Well, it sounds like you're doing well, and I'm glad that you made it through. And it really seems as though you've opened up this opportunity for millions of people to invest in an asset class that they did not have access to before you dove in to those books and the internet. So thank you. I mean, that's as plain as it can get. That's, you changed some rules. That's awesome. And without actually... without getting into the nitty gritty details of what those arguments were or the different subsections of this and the who cares about what's this, with the things that you had with the SEC, the way that your company is able to operate now, is this something that you were able to finagle into pre-existing guidelines? Or did you? and the SEC have to homebrew like a new path and actually changed rules.
Jesse Randall: Excellent question. The short answer is we did not change a single rule. You can approach the SEC and advocate for a new framework and actually know someone who worked his butt off to do that. Um, and it's, uh, it's a little bit precarious to go that way because then you're under a huge microscope scope with, uh, with the SEC because they want to make sure it's safe, you know, and, and it can be hard to do that. But ultimately every investment vehicle you see out there at some point was brand new, you know, um, at some point, you know, the, uh, so, so the 1940 if you offered any type of investment product in the 1940s you had to deal with that act and there were no exemptions like you just dealt with it but eventually you know groups would come in and say hey you know we want to do this thing and it's a little different it's in real estate we want to pull money and we want to do this thing you know can we have this exemption and can we have these special dynamics and they would work together to craft it and then the SEC would say okay and off they go and then the SEC would take that and put it on a shelf and then anybody could walk into the SEC and say hey I want to read
Ethan Peyton: Mm-hmm.
Jesse Randall: I want a mutual fund or hey, I want an ETF or hey, I want a venture capital fund. All of these things were developed over time, right? And now today when you go into the SEC, there's dozens of these fund structures that you can pick off the wall. And basically what we did was, our discussion with them was, is there a pre-existing fund structure that would allow us to take money from regular retail investors and invest in the same asset as a venture capital fund, but without
Ethan Peyton: Mm-hmm.
Jesse Randall: being by legal definition, in a traditional venture capital fund the way that they are structured. And the short answer was, yes, there's some ways to do that. And they provided us with some options that we assessed. And we came back with the one that we thought was the best fit. And it's called an interval fund. If you wanna look it up, it's super exciting. But
Ethan Peyton: Hahaha
Jesse Randall: Yeah, it was typically used in real estate, which is a different type of illiquid asset basically.
Ethan Peyton: Mm-hmm.
Jesse Randall: And we just changed the asset and said the illiquid asset we're investing in is early stage venture backed startups.
Ethan Peyton: That makes sense to me. I'm glad that you were able to get creative. And I'm sure you ran many, many, many highlighters out of ink by the time you were done with all this. So let me ask, from the investor's point of view, how should the everyday investor think about adding venture to their portfolio, or specifically working with Sweater in their portfolio? Is this like an asset that they should focus on to maximize their returns, or should this be looked at as more of like a diversification move?
Jesse Randall: Oh absolutely, so let me give you... This is one of these places where I need to state this is not investment advice.
Ethan Peyton: Of course.
Jesse Randall: You know, I'm not sure. I'm not your advisor. You know, so like take all of this with that grain of salt. And there's a few things that like, I, throughout this, I won't be able to state openly, you know, like I'm not going to, when we talk about the cashmere fund, I'm not going to talk about, target returns or things like that, right. But what I can do is I can talk about what others do and we can talk about kind of the status in the market.
So the private venture backed asset class and venture capital funds, it's around since the 70s right so and until we came along there was really only institutional and highly wealthy accredited investors that were able to participate. So over the course of the last 50 years, that has refined into a place where there's a lot of predictability and how the wealthy leverage it in their portfolio strategy. Now, the difference between your portfolio strategy, Ethan, and someone who's worth $50 million is going to be quite different, so take it with a grain of salt. But the biggest institutions out there, they will allocate upwards of 30 to 40% of their portfolio to private assets.
And then within the category of private assets, venture will make up anywhere from, you know, 5% to 20% of that 30%. Not 20% of 30%, but like 20% of your total portfolio. So, you know, it could be 70% of your private asset portfolio could be in venture capital. Now, I wouldn't recommend that to the everyday person. You know, what we see is it's like, well, if your portfolio is somewhere between 3% and 10%, depending on your risk tolerance, that's probably a good range. And when you start coming down the wealth spectrum and you go from big institutional investors like CalPERS that has hundreds of billions under management, down to the family office that has 50 million, down to the wealthy doctor that has 5 million, down to the regular Joe that's got 50 and has been working his butt off, down to the college student that doesn't have any, you know…
Ethan Peyton: Mm-hmm.
Jesse Randall: …and you kind of run all those scenarios. I think that it's part interest So there's a lot of ways to look at it and from that perspective I'll just put one point on it that Sweater has an interesting advantag is that we're able to invest in a very large portfolio of companies, which makes it risky. Yes, you should only put money into this category if you're willing to lose it as a like first rule if you're not willing to…
Ethan Peyton: As any category.
Jesse Randall: Yeah, yeah for sure any category venture, especially. I mean, it's very volatile.
Ethan Peyton: Right.
Jesse Randall: It's like you either get big wins Or you could have complete losses very quickly If you make a single investment, you've got like a 75% chance that's going to be dead zero in three to five years, right? But if you win and it's like a 99th percentile investment, it could return 100X, 500X your money, right? So that's like one investment. You look at a venture fund that makes 30 investments and some of that volatility is taken out because of diversification within their own portfolio. So your risk of total loss is pretty low. It's like less than 5%. you know you've got a 5% chance of 10x in your money. Sweater is even one step further because we're not going to make 25 or 30 investments, we'll end up making 200 or 400 or 600 investments. So that diversification is taking even further along and yes you could still definitely lose all your money but it's a little bit more stable than the rest of the asset class in general.
Ethan Peyton: So I know regular venture funds are kind of like, they raise one fund and they have to invest that, you know, all those dollars in a certain amount of time. Is this a situation, is Sweater a situation like that where you're raising, you know, a fund and then investing all of those dollars and then you'll start another fund? Or is this more like, kind of like a rolling fund where you're always, always building up that investment and then... you know, whenever a good opportunity comes along, making investments and kind of just building that through the years.
Jesse Randall: Yeah, I'm glad that we're framing it like this. So a traditional VC fund, its life cycle is typically take 12 to 18 months to raise all that money from the LPs. And then you've got typically three years, maybe as long as five years to actually deploy all that money. And then you raise another fund and you go do it all again, right? So each fund has an open and a close, has a fixed amount of money and a fixed number of investments that end up in it. Sweater is different because the fund is evergreen. So you mentioned rolling fund. It's sort of like that except the classification because it's a registered fund. So it's evergreen and in a way, I mean, think of it kind of like the way that a mutual fund works, right? It's always open, you can always put money in, we have some liquidity to get money out, which traditional VC funds don't have, but because of that evergreen nature, we have a very different time horizon and a different mentality of how we build a portfolio.
So as the money comes in, we're basically aiming to invest that money in a reasonable amount of time right after. So a traditional VC fund the money and then they have three years to deploy all the money. For us it's like okay last quarter we brought in a million dollars so this next quarter we need to deploy a million dollars you know roughly it's not quite like that but you know as money's coming in then we're deploying right behind it more or less and we've got flexibility on there I mean we can technically sit on cash for like I think it's up to 24 months but our goal is to deploy it within you know 120 days more or less and try to match it so that the money is put to work.
Ethan Peyton: I like that concept, it's really keeping you on your toes and making sure that you're always out making the best decisions. Not that you wouldn't anyway, but it seems like another layer of holding your feet to the fire in your investors' best interests. I wanna change gears a little bit and come at this from the angle of a startup founder who is looking for venture investment. So if I'm a founder of a new company, I'm out looking for a pre-seeder, a seed round, I'm not sure exactly which you all focus on, but if I'm looking for that investment and it fits in your all sweet spot, why do I choose sweater over a traditional venture firm if I've got a stack of term sheets?
Jesse Randall: Yeah. Yeah. Well, these days, if you have a stack of term sheets, you are in a very blessed place.
Ethan Peyton: Oh yeah.
Ethan Peyton: This is why it's a hypothetical. Ha ha.
Jesse Randall: No, no, for sure. And I, I say that as a founder, not, not as a VC.
Ethan Peyton: Oh yeah.
Jesse Randall: Things have changed a lot in the last six or eight months in the VC world. So for context, Sweater typically invest at the seed stage. We can do pre-seed. We've done a few Series A, even done a Series B or two. So we have a lot of latitude. and how we can deploy capital. From a value add perspective, it's funny, like amongst founders, again, I definitely consider myself a founder. Amongst founders, it's kind of a rolling joke of the value add discussion that you have with every VC because the list tends to be very similar. I'll bring you great connections, I'll be a great board member, I'll pick up the phone when you need me to, I'll be around when you raise your next round, and they tend to be very similar. And it's all sincere, You know, I don’t think anyone’s lying about it, no one's trying to like pull the wool over your eyes or anything.
It's just kind of ironic because everybody says the same stuff and legitimately many VCs have much deeper connections and much more meaningful ones than others. I mean, like you go into Andreessen and Andreessen has built an incredible network that's, I wouldn't say it's untouchable, but it's best of the best, you know, where if you get an investment from a regional fund, you know, that only operates in, I don't know, Texas, then they may not have much influence out the outside the sphere of Texas and their, their reach is going to be lower, right?
So if you were picking between Andreessen and you're picking between this other fund, you'd probably go with Andreessen not just for the reach for a variety of reasons, but you know that's the kind of thing that I know that you're bringing up here. So for Sweater, we feel that we bring a very unique value add to the table and that is that we have an audience of 40,000 people who have downloaded our app and are part of our community and that we have done a very good job of building community and engagement and buy-in around so when we make an investment in a company that when we make an around and actually promote it to our base and they can purchase the product, they can go promote the product through their personal channels, they can champion the product inside the walls of the company they work for and we can tap into that in a very elevated way.
So it's important I think as we examine our place and our positioning in the VC world that we do bring something really unique and it's all powered by tech that's the other side of it right. So you know probably I don't know we've made 27 investments in the last year. I would assert that about a third of those we sort of weaseled our way in because of this very thing. They made room at the table for us because they see what we can do today and how this community is going to grow over the next five years that will come back and benefit them because there's aligned interest there. You know, we've got… today we have 40,000 people in the community. We have 5,400 people who have made an investment and those people have an inline incentive to help each company be successful because it helps their investment.
Ethan Peyton: Do you have any specific stories where someone or a group of people from that community championed a business that an investment was made in that made a material impact in the operation of that company?
Jesse Randall: Yeah, for sure. So we're in the middle of one right now that I think is an interesting use case because they have a B2C component and they also have a B2B2C component where they sell the businesses who then turn around and sell to their customers. And on that B2B to C side, so the company's called Windley, and they have allergy therapeutics, basically, that you can do at home. So in the US, the standard is, if you have hay fever, and you want that to go away, you can go see an allergist, they'll test you for it, make sure it's accurate, and then you go in and get a shot every month for 24 months, and it will go away. It's expensive, you have to go in every single month, you have to be super consistent. If you miss anything, it's gonna throw the whole thing off.
But in Europe, they use a different approach. They actually have these little droplets self-administer under your tongue. You do it once a week for the same amount of time. You never have to go see the doctor. They mail it to you. It's way way cheaper. And so Windley is bringing that to the US. And these are licensed therapeutics. These are doctors that are allergists. I should say not therapists. They're allergists that specialize in this. So when they, you know, A, we can help them take that solution to our base and anyone with allergies could use it.
My sister actually bought it and she loves it. She's way they also work with doctors so they'll work with you know say an optometrist you know you get that hay fever every year you happen to be seeing the optometrist the optometrist is like hey looks like you've got some nasty allergies have you heard of Windley they can really help you out and they have a rev share agreement with these doctors to promote the product and one doctor can bring in 50 to 100 thousand dollars a year of revenue for Windley so we're in the middle of organizing all this right now but just within our own team we asked how many doctors we have connections to? And with our small team, we had connections to over 200 doctors that…
Ethan Peyton: Wow.
Jesse Randall: …we are making introductions to them for. I mean, it's kind of funny when you really start looking around, how many doctors you know. Everybody knows a lot of doctors. And so the next step is going to be going to our base of 5,000 and saying, hey, does anyone have connections to these types of doctors? And as we roll it out, we know that we're going to get thousands and thousands of potential referrals. And what we'll do is organize those and just have a steady drip of introductions to the Windley team as they can handle it. To get these warm intros into doctors that can drive a significant amount of revenue. So sometimes it takes a little while but it's all driven by tech and the ability for us to communicate and have very you know loyal folks that help with that.
Ethan Peyton: Yeah, that built-in network effect. That is pretty, that's something that not everybody can say that they just have access to. So that's a pretty good selling point to me. I'm glad you brought that up. All right, so let's talk about the future. What do you think that the kind of like evolutions or the future of Sweater looks like over the next year or the next couple of years?
Jesse Randall: Oh yeah, this is where it gets fun. You know, I think maybe I'd say a five-year vision. Um, you know, I, I kind of lovingly, uh, provided a comparison between us and other software companies to investors, just so that, you know, you know, a feeling for how maybe we're a little bit different as a software company. You know, most software companies can grow incrementally. You know, it's like buying a huge plot of land and building a sub-development or a housing development. You know, you sell one house at a time and you build one house at a time and every house brings revenue. and eventually you fill the whole thing out, right? We're more like building a really big commercial building. It's a different timeline to build the thing. It takes longer to get to revenue. It's more, you need specialists to do very specialized things to make the building operate correctly. The business model is different, you know? But they're both buildings, right?
And it's kind of like, well, yes, they're both buildings, but obviously they're different. And that's kind of the way we think about ourselves, you know? So when we talk about the future, we're building big things that have stair-stepped advantages, that have a huge ability to grow as you get them off the ground. So the Cashmere Fund is the first of many funds. So on one side of the equation, it's very clear that we are going to launch more funds. So when you come into the sweater app, you'll be able to see the Cashmere Fund. That's very, you know, consumer focused. You'll be able to get into a late stage fund. You'll be able to see a climate tech fund. You'll be able to see an impact fund. Right. And then you can put your dollars in the effort that you feel is most aligned with who you are.
Adding to that, we're actually taking all of our technology and all of our expertise of operating these highly regulated funds and packaging them up so that other groups could come to us and bring their own and basically build their own fund. They bring their own community, they bring their own deal flow, they bring their own investment committee and we do everything else for them. And then they list that fund in our community so that our members and their community can come in and participate in that fund and see everything else that's going on. So five years from now, you know, 30 or 40 funds that are inside our ecosystem, both our own funds, as well as funds that we're hosting for others. We want to have hundreds of thousands of members. We want to have millions of people in our community that are all adding to this feeling. Right.
So that, you know, the impact for you, Ethan, when five years from now you're like, hey, I've got this crazy idea and I'm thinking about it. You can come into the sweater ecosystem and if you earn an investment from sweater, you're automatically tapped into an aligned base of people that could bring you your first $250,000 of revenue in 60 days, right? Instead of having to grind through it for like a year, right? Which is the path right now.
And it's those types of experiences where… when, five years from now, we want to be a heavy hitter in the room, right? We'll have four or five years of full investment traction and I guess track history behind us, right? That people can rely on. And we're gonna have all kinds of different types of investors that are involved in this. community. But ultimately, you know, like if I'm being, you know, truly truly true to myself, right? I mean, I'm a founder first. I founded several companies before this, most of which just didn't perform that well. And it's hard to get a company off the ground. And I'm aligned with founders. I want more founders to be able to build successfully build their vision. And the most precarious time to be a founder is between pre seed and Series A and to help founders work their way through that faster is ultimately the biggest impact I want to have on the world and the venture community. And of course, opening up the asset class for all of us regular folks to come around the table is the first step in that. And I care about that a lot too, because I am also one of those retail investors. But ultimately, we wanna help shape the world and shape the future and allow everybody to have a voice in how that takes place.
Ethan Peyton: I think that's a heck of a vision. I love that you are founder-focused, that you're founder-aligned. That's how we feel here at this show. And I'm stoked to hear it. And you've given me the opportunity to ask you my favorite question, which is, what is your number one piece of advice for those early stage entrepreneurs?
Jesse Randall: Oh, it's hard to narrow it down to one. You know. It might seem obvious, but having the... The alignment with yourself that you really want to do and really want to build what you're building is the most important thing. I've tricked myself before into pursuing something, thinking that I had passion for it, when really it was more like puppy love, you know, if you compare it to real, like, you know, your regular life and relationships. It's easy to fall in love with an idea at a pretty shallow level. And you can really put yourself and your career and your relationships at risk if you're not truly committed to it. It's hard to find that commitment when you first start. You don't really know if you're that passionate about it.
But there will be a point sometime in that early journey where you will decide whether or not you will stop what you're doing or if you will double down and keep pursuing it. And it's gonna be because you hit something really hard. So, I'm gonna go ahead and start with a question. What is the most common way to get a job? And that's going to be the defining moment for you is really knowing whether or not you are going to keep going. And when you get that level of commitment. then nothing can stop you. And it's very rare that you have that at the beginning.
Like for me, in my story, it was two and a half years to get to the SEC. And I actually had two points along that journey where I had an opportunity to move on to something else and to give myself a more stable life with more clarity. I mean, from everybody else's perspective, I was beating my head against the wall because everyone, literally everyone said, this is not possible. Why are you spending time on this? And both those were around different co-founders that I had. And I bought out a co-founder after working together for almost a year, and I gave myself three months to achieve a couple of things if I was gonna keep going.
And I achieved them, and I said, okay, I'm still in this, like let's keep going. And it happened again a year after that with a different co-founder that I brought on. And... At some point you just… you have to find as an individual what is driving you to do what you're gonna do. And I would assert that money is the absolutely wrong reason. If you want money, if you want the big win, if you want the fame, those are the most shallow reasons that you can become a founder and have the motivation to build something. Unless you're like, you know, unless you're a narcissist, maybe then it's built a little deeper, but it's not that deep for me. So you really gotta care about what you're doing. And that's what I look for when I talk to founders. You know, go through all the typical business questions and understand the framework and you know, the market size and your competition and your positioning and all that kind of stuff. But what I really wanna know when I'm talking to a founder, I want to find that flame inside you. And what makes that flame stay on? Because I can tell the difference when a founder has that flame or when they're just building for money and I don't invest in founders like that.
Ethan Peyton: That was very eloquently stated. And I think if I tried to add anything to that, that it would be not helpful. So I'm just gonna let that sit. Everyone else should probably just listen to that again and then forget that I ever talked. Just listen to that over one more time. All right, but moving on. Hey, you've got a really nice sweater on. Who'd a thunk it? Do you have a, do you give a sweater budget to all your employees?
Jesse Randall: Yes, actually, we've done it.
Ethan Peyton: Yes!
Jesse Randall: We've done it a couple of times. Now we take Sweater sweaters very seriously around here. Matter of fact, we have a whole custom sweater lineup like…So if you go on the website, you can actually go to the store and you can find a Sweater sweater. You can find the store in the app as well. And oh yeah, we're big on that. It's legit. This one's actually custom made. I don't know if you see that. It's got a little got my little sweater icon on here. But yeah, we do provide a steady budget for our team to be able to have lots of sweater. We don't call it swag. That's like landfill swag. It's garbage. This is like premium stuff. It's really good.
Ethan Peyton: Yeah, I've seen enough photos on your guys' website to know that there is something going on there with those sweaters.
Jesse Randall: How could we not? I mean, come on, you know, it's like, we've got this fantastic iconic brand opportunity. How could you not have sweater sweaters?
Ethan Peyton: Yeah, that would be a huge missed opportunity and I don't think I would ever invest if you weren't wearing a nice sweater. So thank you for that.
Jesse Randall: Yeah, well, I mean, I've been told by my board that if they ever catch me in any public setting without a sweater on, that I'll be fired. So I take it seriously.
Ethan Peyton: Just don't go anywhere near the south, it's hot down there.
Jesse Randall: I know we're trying to figure that out. We're like, oh god, we got all these friends in Miami and in Houston We're like, well, maybe we'll do like like sweater bikinis or sweater Speedos and like I don't know if that's gonna work. We'll figure it out.
Ethan Peyton: Alright, I've got one more question for you, and we better do it because I'm having too much fun. Where can people connect with you online and how can our listeners support Sweater?
Jesse Randall: Absolutely. I mean, like me personally, you can find me on LinkedIn. I love LinkedIn. I know it's not like the first stop for most people, but I'm very active on LinkedIn and love to connect with new folks and have people follow my content. I publish there every day. You know, it's a combination of, you know, startup. I don't know if it's wisdom, but like startup insights of what I've learned along the way, family stuff, endurance sports. I love all that stuff. So if you want to connect with me, I'd love to have you follow along with the journey.
Sweater you can find on all the typical platforms. You know, we try to maintain a positive presence out there. Of course, definitely invite you to go download the app It's free to download You can go in and see all the venture 101 videos and content and get a feel for what the community is like And all that you can do all that without making an investment and see if you like us or not. And if this category is for you, you know, I mean whether it you know, it might be right for you right now It might be right for you in two years and all that's fine with us. Like just come in and join the community and have some fun.
But you know overall I think that we as a company you know, we're built by people that relate to the everyday person. And it's not technically a hiring requirement, but having your roots in the world of everyday people is something that's important to us. And so when we throw an event in New York, you know, or we have, you know, virtual events that we do, we didn't talk about this, but we actually we throw this massive pitch competition. It's kind of like a combination of like Shark Tank meets America's Got Talent. And we just did one like a month ago here in Boulder and we published it.
Ethan Peyton: Is this the barn burner?
Jesse Randall: Yeah, Barnburner. It was fantastic. You know, we're doing another one in New York, you know. So we've got all these ways to engage and have a good time and, you know, we hope you join us for the journey even if you're not ready to invest.
Ethan Peyton: Awesome, well I hope I can get myself out to one of those events and check it out here in the near future. Jesse, this has been so much fun. I really appreciate you coming on and giving us the insight into your business and into the markets that you are so familiar with. And folks, you can find everything we talked about today, all the links, all the... all the videos over at the show notes. Those are gonna be at startupsavant.com slash podcast. Jesse, thank you.
Jesse Randall: Thank you, pleasure to be here. Thanks, Ethan.
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Sweater Ventures is a fintech startup making it possible for anyone to invest in startups through their innovative venture capital fund.