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When you start your “career” as an investor, you’ll generally hear the saying “don’t put all of your eggs in one basket.” This is known as diversification and it is one of the main mechanisms used to mitigate investment risk. In this post we would like to explain why investing in Venture Capital can be a great way to balance out your investment portfolio and how Sweater ensures not only good diversification, but also provides the easiest and most accessible way to invest in venture capital.
With the current macroeconomic climate involving decades high volatility, inflation, and interest rates, having a diversified portfolio is one of the only ways to keep your money working for you. In this regard, Sweater offers access to the Venture Capital market thanks to its first of a kind public venture fund, The Cashmere Fund. This fund not only welcomes non-accredited investors, but also creates a unique index fund of private companies, providing diversification benefits that you most commonly see with ETFs or mutual funds. This is because the Cashmere Fund is an evergreen fund, investing in many different private companies over its lifetime. This ensures if one company doesn’t fare well, there are tens of hundreds of other companies to make up for it.
Investing across different alternative assets isn’t always top of mind nowadays given the endless opportunities to invest your money in the public markets (stocks, crypto, real estate, etc). That’s why we set out to open up venture capital to anyone and allow retail investors to seamlessly add venture capital to their investment portfolio. Institutional investors have been shifting their allocations to private and alternative investments to close to 20% over the last few years, why shouldn’t retail investors be given the same opportunity?
Since the inception of venture capital, it’s been nearly impossible for retail investors (or non-accredited investors) to own a piece of the pie. Generally, to own a stake in a venture capital firm you need to have a $100,000 minimum investment as well as checking off accreditation requirements (make $200k/year or worth $1m+). Angel investors have been around for years, and although the check sizes tend to be closer to the $25,000 range, they are still subject to the same accreditation requirements as venture capital firms. Sweater worked with the SEC to launch a fund structure that allows non-accredited investors to invest as little as $500 into venture backed companies.
One other hurdle retail investors face when it comes to venture investing is the knowledge and resources required to run proper diligence on the companies they are investing in. Sweater has a dedicated deal team and investment committee that meticulously analyzes every aspect of a business before making an investment decision. They look into the founding team, operating metrics, financials, and anything else necessary to feel confident in each and every investment they make.
Even if you have the investment knowledge required and the checkbook needed to write angel checks into a few venture backed companies, generally it’s next to impossible to get into any competitive deals unless you are a venture capital firm writing a big check. Sweater is able to pool together the money from all of their retail investors and invest meaningful checks alongside other world class VCs, ensuring their members get access to some of the best deals out there. On top of this, most angel investors don’t have the ability to invest in enough deals to build out a truly diversified portfolio. Every Sweater member is invested into their entire portfolio of 25+ companies, with hopes to grow that to 100+ over the coming years. That’s diversification at its finest.
Sweater tends to make the majority of their investments into early stage companies, with most falling around the seed stage. This is generally the first major investment a company receives and can be raising funds generally in excess of a million dollars. The benefit to this is Sweater invests when a company’s valuation is still exceptionally low compared to the public markets. While this can carry more risk as a single investment, when diversified across many different companies, it can provide the opportunity for meaningful returns.
One other benefit of investing in Sweater is that members can directly impact the outcome of the portfolio companies. For example, Sweater is an investor in Graza olive oil which can be found now at countless grocery stores. Next time a Sweater member is at the grocery store looking for olive oil, they can purchase Graza which directly helps that portfolio company. They can also refer it to their friends and directly impact the sales for the company. This is active ownership and it can make all the difference in early stage companies. Buying a pair of Nike shoes probably isn’t going to impact the outcome of a $175B company, but being a brand ambassador for a company that’s just getting off the ground can really change their trajectory.
Overall, Sweater's approach to venture capital investments provides retail investors with a compelling opportunity to diversify their portfolios and access the potentially high returns associated with early-stage companies. By offering an accessible investment structure, conducting thorough due diligence, and facilitating active ownership, Sweater empowers retail investors to participate in the venture capital market in a meaningful way. As the economic landscape continues to evolve, diversifying into alternative assets like venture capital becomes increasingly important, and Sweater offers a user-friendly platform for retail investors to do so.
As a reminder, all investments involve risk and past performance is no guarantee of future returns. If you want to add venture capital to your portfolio, please sign up for a Sweater account here or scan the QR code below:
