“It really comes down to who the founder is: Why is that person the right person to actually execute on that problem and solution that they’re coming up with. And who is the team around them.”
Cara Morphew is a Partner at Sweater Ventures, a venture fund for everyday investors, including non-accredited retail investors. Sweater is looking to democratize venture capital by giving access to an asset class that historically is limited to the wealthy. Sweater recently raised $12M to build out their team and technology. Prior to Sweater Cara was an investor at Chicago Ventures, Selwyn Ventures and Co-Founder of BeenThere Technologies.
Key Takeaways:
Sweater Ventures is looking to not only give access to venture capital but teach people how to become an investor and evaluate early stage deals.
The three major things to consider when analyzing a deal is market size, team, and competitor landscape.
In order to manage all your responsibilities and time well, you've got to rely on your team and work as a team to move fast enough.
Topics Covered:
What is Sweater
Why a fund? 2:35
Why companies will choose to raise capital from Sweater 4:26
Will Sweater do SPV's? 6:55
What led Cara to Sweater 9:46
How do non-accredited investors learn about VC and Sweater 12:45
Training people to become investors and build wealth 14:34
What to look for in a great company 15:56
Managing her time 24:22
Favorite book - Venture Deals 25:47
Listen on Anchor or Spotify
The below transcript is edited for clarity
So typically, to get into venture capital, you have to be an accredited investor. Sweater’s totally changing that. Can you talk to what you guys are doing to give everyone access to venture capital?
Yeah. Essentially, the best way to describe what we’re doing is we’re a fintech platform that supports a venture capital fund. What I mean by that is we have an app, and it allows for nonaccredited investors or accredited investors to come onto our platform and invest directly into our fund. There are comparables in other markets—think Fundrise for the real estate market—we’re doing that for the venture capital market. We just launched. You can download our app. The minimum investment for anybody is a five-hundred-dollar investment, so it’s a pretty low barriers to entry, and we’ve had a wide range of checks as well. We have some family offices that are looking to invest in the fund or have [already]. Then we have all the way down to your normal day-to-day retail investor doing the minimum amount of five hundred dollars. So it’s super exciting. It’s just a way for us to open up the asset class and give more access in addition to providing more education on what the private markets can offer and how you should look at these types of investments.
When someone is investing in Sweater, what are they investing in?
Just like a traditional venture capital fund, you’re investing in our Cashmere Fund, which is our flagship first fund. Just like a normal LP who would invest in a fifty- (to) one-hundred-million-dollar fund, you’re investing into Sweater’s fund, and then we have a team of professional investors who actually go out and deploy that capital on behalf of our LPs, or our members. So instead of doing a Republic model where you’re choosing deal by deal and investing deal by deal, you’re investing into our fund, or our portfolio, then we’re deploying that capital on your behalf.
Is there a reason why you’re doing it as a fund instead of doing it deal by deal?
Yeah. I think that there’s certainly value in a platform like Republic. I wouldn’t necessarily call them a competitor to us purely because . . . I have a lot of people in my network who want to start investing, even accredited investors want to start writing angel checks, but they don’t really know how to go about assessing the deal and picking the right deals. So Republic has this huge platform with tons of different types of deals, but a lot of people get lost in that kind of platform and don’t really have the education or experience to make the right decisions there. And there are a lot of venture-qualified deals on those platforms, but there are also deals that might not necessarily be venture qualified. What we’re doing is making investments into venture-qualified deals, who also might not go to those platforms to promote their investment. They’re typically going to traditional VC funds. So these retail investors don’t actually have access to those deals in the first place anyway. We’re giving more access to really hypercompetitive venture-backed deals and then also helping our members understand the decision that went into that, why we made those investments, and kind of an educational journey where they will be armed, eventually, to make their own decisions in terms of angel investment.
So for each company you invest in, they’ll get an investment memo—the rationale behind each think so they can see the way you think—and then over the long term, they can see how that plays out.
Exactly. We actually announced our first five this week, and those are in-app. People can take a look at what went into that decision, a little bit more about that company, why we invested, and why we’re excited.
How do you get into companies? Why should a company take investment from Sweater?
Really good question. There are a bunch of different ways we get connected to companies. There’s the more traditional way. I came from VC and more traditional funds prior to this, sharing deal flow with other investors [and] co-investors that we have good partnerships with. Founders are a great resource for us as well because founders have a huge network of other founders, so that’s a great source for us. That’s [the] traditional source. Then we also have a scout network of about a hundred scouts. A lot of them are coming from operating roles or product roles or development roles. They see totally different types of founders as well, and they’re super excited about the mission behind Sweater. So we have a wide variety of young scouts who might be early in their careers or a couple that are very late in their careers and have access to a ton of different types of founders throughout their careers and are excited about what Sweater’s doing. So that’s been awesome for us to see. And then the final way is actually through our members. We have investors who also have networks of founders and are super excited about them, and they can share those deals with us.
So they just reach out to you say, “Hey, love this company. You should take a look.”
Yeah, exactly. The value that we can bring to these companies is actually very unique compared to other funds in that we have tens of thousands of LPs versus ninety-nine LPs, so when we make an investment, like I said, we announce it to our member base, or our LPs. Then they’re, in turn, incentivized to either use that product or promote it to their network as well because obviously, growth in our portfolio inevitably means growth in their investment. So there’s kind of a flywheel effect there where we can actually drive growth for our portfolio companies.
So when you get to a certain point, you have a hundred thousand LPs that are posting on their networks “I love this company,” and “I love this product. You should buy it and send it out,” to all their friends?
Exactly.
That’s powerful.
Yeah, we’re super excited about it, even in the early innings . . . starting to see the excitement around our first five investments and how they’re going out and promoting this wide range of fintech through health tech, actually some B2B as well, and then traditional consumer products.
Will you guys ever do SPVs (Special Purpose Vehicles), where someone can invest alongside you on a deal and be an angel investor in that?
Longer term, we’re definitely looking at that option. Right now, we’re obviously hyperfocused on the fund and deploying there, but in the next year, it’s something that’s on our minds: opening up access to co-investment opportunities, SPVs, and so on. A lot of the family offices that we’ve talked to are super excited about that. But even down to more traditional [platforms] like the Republics and other crowdfunding platforms, we could add that so that nonaccredited investors could invest alongside as well.
Well, you had a ton of people on the waitlist – 70,000 people. So clearly, there’s a huge demand for this. What’s been the founders’ reaction as you start talking to companies about what you’re trying to do? What’s been their reaction?
Honestly, it’s been overwhelmingly excited. One, I think that there’s a big passion for democratizing or taking down a pretty old-school industry. So there’s that entire side of it. But also, a lot of our founders are just really excited about what we can do for them that’s totally different from their other investors. Not to say that other investors aren’t super valuable in a very different way. They can be much more hands-on in terms of going through different fundraising processes and hiring and so on. But they see us as an added benefit where we can drive growth and partner with them in a totally different way.
You’re probably also really valuable to a lot of other VCs because you see so many deals. So they want to know you guys are what you’re investing in.
Exactly. That’s a huge aspect of it. As we continue to grow the platform, we have talked about having other VCs on the platform as well to see and get connected with founders through it. But there’s also the aspect of co-investing. Like I said, we don’t take a lead position, so we’ve started to build a lot of really strong relationships with other investors who do lead and can be more hands-on, and we’ll co-invest alongside those investors. Or sometimes we’ll come into a deal with another investor that isn’t the lead, but they’re trying to fill out the round, and they’re super excited about it. So there’s the more traditional co-investing aspect of it and the value we can drive there, but there’s also the aspect of us having this huge community and platform that they can utilize going forward.
That’s very cool. And what led you to Sweater Ventures?
This is something I’ve been passionate about for a while. I am very passionate about investing in female founders and diverse founders and could go on about all the issues within the ecosystem. But what I started to realize is while there’s definitely some issues at the VC level in terms of having diversity and the partner-level and decision makers at funds, there’s even more of an issue at the LP level. I wanted to figure out a way where, at my last fund, we might be able to open it up to a larger group of folks and a more diverse group of folks through a platform like Republic. I was actually looking into that, and ultimately came across Sweater and saw that they were five steps ahead of me, actually ten steps ahead of me, in terms of that. It all just made sense in the mission that they were driving toward, what I wanted to do, and the impact I want to have in the ecosystem, so it was a perfect fit. I think there’s a world where longer term, we could potentially have other fund managers or emerging fund managers raising funds on our platform and opening up their fundraising process to everybody and retail investors. I’ve already talked to quite a few fund managers about the excitement there. Hopefully, that’s something that we can potentially get into in a few years as well. One other thing I should note is [that] up to 15 percent of our investments are toward emerging fund managers, so we have a fund-to-funds approach as well.
Kind of what Foundry Group has been doing the last couple years.
Yes, exactly. One of our first five investments was actually in an emerging fund manager, and we’re excited about the angle there.
What’s the strategy there? Why invest in emerging fund managers?
There are a couple of different benefits. One, just driving toward the mission behind the fund and getting more access and more diverse fund managers. Access to having an impact on the ecosystem . . . for example, we just announced Ganas Ventures’ ten-million-dollar fund. Lolita Taub is the emerging fund manager. She’s awesome, very community driven. We can co-invest alongside her into the investments that she’s making, so it’s another source of deal flow. On top of that, we’re not investing internationally right now. It’s something that, longer term, we might end up doing, but we’re focused on US investments, and Lolita is focused on North American and Latin American investments. It’s another way for us to diversify and indirectly invest into international markets.
You talked about giving everyone access to venture capital, but a lot of people don’t know about venture capital, and they don’t know whether that’s an asset class they should invest in or is that something they should invest in every month. How do you become known with a lot of people that just don’t even know about venture capital?
This is a really good question. It’s probably a better question for our marketing team, but they do an awesome job. We have been marketing through a lot of different angles. It’s easy for a lot of people within the ecosystem to hear about us just purely based on connections and VC, Twitter, and so on, but we’re trying to go through partnerships through different social media platforms with different influencers or stakeholders who have very different audiences. So we might partner with an influencer that has a large female following, more traditional or less on the finance-heavy side, and it opens an educational aspect to them and that following. I mean, I have a lot of women in my network who are starting to make investments themselves, and they are trying to figure out angel investments or private investments, and they’re trying to figure out what the best avenue for that is. We’re trying to hit that kind of user, where they might not know enough about the venture asset class, and that’s where our educational content and videos can come into play. We’re really trying to plug into a wide variety of influencers and partnerships that can drive to a diverse group of people.
Really interesting because you’re trying to give everyone access to the class, but you’re also trying to train people to be their own investors and think that way. Why train people? Why educate them to be their own investors?
This really comes back to the mission behind everything that we’re doing. I mean, Jesse, our founder, started Sweater because he was initially going to go out and raise his own venture capital fund, but he wasn’t an accredited investor himself. So he actually couldn’t do it.
And it was really backward in the sense of what he was trying to do. He also has a public-policy background, and so he went out and made it his mission to figure out how to do this and get more access to people who aren’t accredited investors. For us, a big part of it is getting people to the place where they’re confident enough to invest in a lot of different asset classes and make their own decisions there. And it doesn’t mean, necessarily, that they won’t invest in us going forward, but if anything, I would hope that it would mean that they will continue to invest in us and also make their own decisions on the angel side or in different asset classes as well. We see it as something that can really impact the industry and the ecosystem and break down some of these traditional barriers that have long existed.
You’ve been trained in this industry for a while. So for people that are learning, what are the things that you’ve learned as you look at companies and are trying to figure out whether it’s a good investment or not? What are the things you’re looking for? What have you found to be good indicators?
For us, because we’re focused earlier stage, we will invest in, technically, anything from pre-seed through series B, but seed series A is really our core right now. Obviously, that may evolve as we become a bigger and bigger fund. But for us, [it’s] having a founder that’s the right founder for that type of investment. For any individual company that we look at, we’re probably seeing five to twenty companies that are almost exactly the same. It’s crazy how much you’ll see repetition the more time you spend in venture. There are cycles, different types of trends . . . I mean, I’m sure we’ll see some competitors following us as well. But it really comes down to who the founder is: Why is that person the right person to actually execute on that problem and solution that they’re coming up with? And who is the team around them? So it’s really interesting and core to have a strong founder, co-founder, [and] team, but how are they going to attract a really solid team around them to actually grow and scale? The second thing that I would say, top of mind, is just having a big enough market opportunity. It can mean a lot of different things. We don’t necessarily have a set number that it has to be, like you have to be above three billion, [etc.]. Some funds do have that. We’re more so looking at how much white space is there in that market. Is it a market that might be a little bit smaller, but this company has a great opportunity to own a good portion of that market, or is it a hyper competitive market but a massive market opportunity where there’s not going to be one winner. Those are really the two top concerns or areas that we dive into immediately. Beyond that, we’re looking at go-to-market approach. How are they going to scale? What are the deal dynamics? Obviously, that’s a component of it as well. What are they using the funding for? Have they thought through if they really need to take on funding? We have a lot of startups that come to us that we actually educated on alternative financing options too.
They’re not a venture capital company.
Right. And they don’t necessarily know. I think in the last five to ten years, there’s been a lot of buzz around [how] success as a founder means raising VC money, but the reality is there’s a lot of really, really great, sustainable businesses that don’t take on venture money, and they get acquired or build it into a very profitable company, and it’s much more advantageous to the founding members of our founding team members at that point.
So you’re willing to tell them, “We don’t think this is a venture capital business. We don’t think you should take our money.”
Yep, exactly. Or in some situations we might say, “We agree that you need a little bit of funding right now. We’re down to back you. But as you think about funding going forward, we want to help you find alternative financing options.” This is actually big in CPG if you think about it because if you look at the historicals of exit opportunities within consumer products, [it’s] a lot less than a SaaS business. It doesn’t mean that a founder can’t make really, really good money on those businesses. They just have to be a little bit more strategic about their financing options.
It’s interesting that you mentioned the two things of what you’re looking for in a company. One of them is obviously the team, which makes it hard if you’re just investing in a platform deal by deal and you don’t know the team, which sounds like a competitor potentially does. Where[as] retail investors are trusting you to know the team and make a decision off of them. Otherwise, how will you ever meet the team for all these regular retail investors? With a public company, all the financials are out there, so you can kind of make your own read, but in private, you’re just going off of people.
Completely right. It’s how you might think about the trend of SPVs. There is typically somebody who’s managing that process and taking the lead position and pulling together that SPV, and you’re trusting that person has talked to the founder and does have a good relationship and has assessed the viability of the team and what they can do. It’s really similar to that type of model and them trusting us, or a traditional fund as well, but them trusting us in making the right decisions and vetting out the deals that we’re looking at.
It sounds like the vision is really big. Is the vision to be global with tons of different types of funds for every industry? How big is your team’s vision?
We have had a lot of extensive conversations about this. Ideally, yes, we can get to that point where we are global and are doing more international investments as well. We have multiple funds and thematic funds, have the opportunity for other emerging managers to come onto our platform and raise, and so on. Right now we’re focusing on crushing it with this first fund, but these are definitely areas that are top of mind, and we’re hoping it won’t take too long to get to, especially with international investment. That’s definitely something that’s very top of mind for us. We’ve already started to talk to scouts in Israel and Europe and Asia. That’s something that, hopefully, will be more of a six- to eighteen-month timeframe. Then some of the other product features and ideas will be a little bit longer term.
Well, we’re at the Colorado Venture Summit. What’s that experience been like for you? What brought you here? Is it just to meet companies for potential investment? What brought you to the Venture Summit?
So obviously, we invest across the entire US. We’re not a fund who’s focused solely on the Colorado market. But something that is important to us is we are headquartered here, and we do want to be involved in the ecosystem and growing the Denver-Boulder or greater Colorado ecosystem, so we’re really trying to get involved in more local events. There are so many benefits to meeting founders here and speaking with them one-on-one but also meeting other funds and ideating on how we could work together going forward and what events we can do and so on. So we’re going to be doing a lot more of these events going forward and trying to get really ingrained in the ecosystem and build up the Colorado ecosystem.
And is that where your focus is? Let’s really get ingrained in all these different ecosystems? Specifically, you. Where is your main focus?
I’m the partner on the team, and so I’m wearing a lot of hats right now, but I do really want to. I came from the Chicago market. I was an investor there prior to this. But I am passionate about Colorado, I grew up skiing out here . . . major driver to why my husband and I moved out here. And I do see the value of the growth that has happened throughout this ecosystem. I mean, if you look at 2021 as a data point, I think there was around six-point-five billion that was deployed in Denver [and] Boulder, Colorado, and that was just behind the Chicago ecosystem, and above that are the big guys. So I truly believe this ecosystem can be a New York in the next decade. I think that there’s so much value that we can drive throughout the full Rocky Mountain region, and that is something that’s super important to me, but it doesn’t mean I’m going just neglect all the other ecosystems that I think can drive a lot of value as well.
So how do you personally manage all that? You’re sourcing, and then when you’re doing deals, you need to be involved with them, and then you’re trying to get more ingrained in different areas. How do you focus your week strategically?
I’m definitely working quite a bit right now, but in a really good way because I’m super passionate and excited about it. What I will say is the team that I’ve hired under me is [made of] rockstars, and they help a lot with the sourcing and diligence side, which is awesome. And I still have a wide network of partners at other funds that I continually talk with and founders that I continually talk with who I get really awesome deal flow from as well. But our team really works together, and we rely on each other quite a bit to really see as many companies as we can and give every company and founder access to an opportunity to submit their pitch with us. It is a lot, but we have a solid team, and I think we’ll continue to hire a lot of amazing folks on the investment team. I’m super excited about it. It’s really just relying on each other and working as a team to move as fast as we can.
Is there a book that you always recommend either to founders or other investors? What’s been a favorite for you that you’d recommend?
This is super cliché because it’s promoting Colorado as well, but truly, this is an honest answer. Venture Deals was one of the first books that I read when I was in business school and looking at venture. I came from the operating and tech side. I was in the earlier days, and I started a company while I was in business school, so it was a really good book for me to read on the founder side. Then when I went into venture, I read it again. I think that book is really, really great for investors and also founders in seeing both sides of the house. So that’s one that I would definitely recommend within the space. There are so many good books out there. I have a long list that I could share as well.
It’s really important for the founder to also know the mechanics of how venture works and what’s being expected of them as part of this deal.
And it makes the process more efficient for everybody, I think, because there are founders that are awesome founders but truly just don’t fit within our thesis whatsoever, so talking with us is not going to be beneficial for them. And it’s obviously not always the most fun process to go through. Fundraising can be exhausting. They’re trying to be as efficient as possible, too, and find the right fit for them, so I think it’s really good to read that book. There’s a little bit of the legal side, too, in that book. It’s a good, well-rounded viewpoint.
Since Jason Mendelson was a former attorney? That’s perfect.
Yep. And he adds his comments from a legal standpoint, so it’s a good one, I would say.
Great recommendation. Well, thank you so much for the time. I love hearing your story and am really excited to see what Sweater does over the next ten years.
Appreciate it.