“One of the biggest keys in life is truly understanding who you are and why you’re doing what you’re doing. You figure that out about yourself, and everything else falls into place.”
Jesse Randall is the CEO and Co-Founder of Sweater Ventures, a VC fund that gives access to venture capital to everyone, regardless of your wealth or accreditation status. Sweater raised $2.3M earlier this year in order to build the technology to put an investment team in the palm of your hands via a mobile app where you can keep up to date on your portfolio. Sweater aims to give everyone a chance at investing in the next big startup through the fund. In addition to Sweater, Jesse is an avid Ironman competitor, family man with five children, and a previous founder to several other companies.
Tell us about Sweater and what your team is building.
Sweater is a venture capital fund that anyone can put money into regardless of your wealth or accreditation status. We’ve organized ourselves in a way that anyone can do it and we’re delivering it all through a mobile app. Think of it like a Robinhoodesque kind of an experience except you‘re putting money into a fully managed fund that invests on your behalf.
We will aggregate money from hundreds of thousands of people into a big pool, just like a VC fund does. Then we turn around and we look for startups that are venture backable (the next Ubers and Airbnb’s of the world), and we back them with that capital and become investors in those companies. We report what’s happening to all those companies back through the mobile app, so it feels like you’re right there and part of the journey.
One of the ways we explain it is it’s as if none of us have been allowed to attend an NBA game in person. We could only watch it on TV. And what we’re saying is we’re going to take you to the stadium, we’ll let you in, and we’re going to give you courtside seats and tell you that you’re now a part owner of the team that’s playing. It totally changes the notion of the experience that you’re having. That’s what Sweater is aiming to achieve - We want hundreds of thousands of people to be able to access this category and be able to build their long-term generational wealth.
What got you interested in access to venture capital and how did it all start?
It’s very personal to me - Three years ago I went out to go raise a venture fund in Phoenix, Arizona, because there’s really no institutional capital in Phoenix so founders have to leave the state to raise capital. I dove into the process and started understanding all the foundational things I needed to get this done and how to organize it. A couple months into this, it hit me like a ton of bricks - I wasn’t allowed to invest in my own fund because I was not accredited. I was like, “That is ridiculous. I’m the one making all the decisions. I’m managing the money. I’m doing everything, but I can’t put my own money in this?”
And I just really wanted to understand why because I knew that rule before (accreditation requirements), but I had never been the one locked out. And I started digging and understanding all the legal background around it. And what I effectively figured out was that the underlying tone was - if you’re not rich, then you’re not smart enough to understand this, and we need to protect you from it. And that rubbed me the wrong way because I was like, “If I’m included in that category, then that assumption is wrong, and I know that there are millions of people just like me who are plenty smart enough to understand this, and this should change.” So, I ditched the idea of raising a traditional fund and started down this route.
Why should “regular” people (non-accredited) invest in venture capital as an asset class?
When you look at reports from the last thirty to forty years, the highest performing asset classes have been venture capital and private equity. They are somewhere in the 20-25% per annum on average for the returns that they create, where the S&P 500 average is around 7.5% over the last forty years. Now within that, you have to take the venture capital asset class and unpack it. You can’t just put money into any VC fund and get a 25% annualized return. There’s a lot of volatility within it. The bottom half of all VC funds don’t beat the S&P 500. But then you look at the top half, they are killing it. And you get those “90th percentile funds”, the Sequoias and the Benchmarks of the world, that are doing much better than 25% annualized returns.
That’s why Sweater’s approach is all so interesting because some of the reasons that the bottom half of those funds fail is because they only make thirty investments. If they don’t happen to get that one really exciting one that just blows it out of the water, then their investments can turn out to be kind of mediocre at the end of the fund’s life. But when you’re looking at Sweater, we’re making hundreds of investments. We’re reducing that downside risk. We designed this so that the risk appetite and the risk profile would be lower than the general VC market but still give you access to an asset class that on average has outperformed anything else we can even get into.
Is that Sweater’s mission then - to even the playing field?
Sweater’s mission is multifaceted but that’s a huge portion of our mission. It’s breaking down the walls so that everybody has equal access. We just want equal access to opportunity. Let us make our own choices. Let us put our money and risk it where we want. Give us the right information and let us make a choice. That’s what people really want, and that’s what we want for people.
If someone is investing in Sweater, they are investing in the fund, correct? Rather than investing deal by deal like crowdfunding websites?
Correct, there’s two sides of the Sweater house –
The first side is going out, finding people, and allowing them to invest in the fund. Those people can either write an upfront check for whatever amount they want to invest or there’s a monthly subscription component where people can continue to grow their position every month and continue to buy in as we make investments. This is referred to as a “rolling fund” which is a trend in the VC world right now.
On the other side of the house - We’re only as good as the investments we make, and so we take that very seriously. With our rolling fund we are not limited to thirty investments like a lot of traditional funds but rather can make hundreds of investments and in a lot of different ways –
We’re going do a lot of co-investing with other venture capital firms. We’ll pick those partners strategically based on the need that they have and the value we can bring to the table.
Finding our own deals. So deals that come in the door from people hearing about Sweater. We’ve also got a scout network that we’re building. We’re planning on having about 1% of our member base be scouts for us. So, when we have a hundred thousand people in the fund, our goal is to have a thousand scouts across the country looking for opportunities. Now, mind you, there’s only about ten thousand deals done in the US every year right now. So, when we’ve got one thousand people on the ground, we’re gonna be able to see a lot of good companies/most of the market.
The other category is called secondaries, which is just a fancy way of saying - buying shares from an employee or a founder. That happens in a lot of different scenarios, but we’ll be able to go in and help founders “take some chips off the table” as they say.
The last thing we’ll do is invest a portion of our capital directly into other VC funds and become a limited partner in a fund itself.
What happens if someone invests in Sweater after you invested in a company like Robinhood as an example. Do they lose out on the upside of the investment in Robinhood because they invested in Sweater you made the investment?
This is where it’s really interesting - The fund value is actually tracked with what is called a NAV, a net asset value. And a NAV is basically a reflection of the value of all the underlying investments that we’ve made. So, on day one, when we haven’t made any investments, we might issue that at $20.00. It’s similar to a stock price. You bought in at twenty dollars on day one, we take that money, we make some investments, those companies grow in value, and now our NAV goes from $20.00 to $22.00. Someone else comes in later and now they’re buying in at $22.00 rather than at $20.00 that you got into the fund for. So you don’t end up losing out on the Robinhood investment if you invest later. You can buy into the fund at any time, but the price will fluctuate.
And that’s actually part of what’s unique about this fund as well is that there’s a liquidity portion to this that allows you to actually take some value off the table along the way which is rare in venture where your funds are typically tied up for 10-15 years. With Sweater you can actually request some liquidity in six-month intervals along the way.
That said, we have to balance that with the long-term mentality. And going back to wealth generation, this isn’t luck. It’s similar to planting a forest. We’re going out and planting all these trees. We got to nurture them. If you come in and try to harvest the tree when it’s a sapling, you might not get much out of that. We need to have the resources to let it grow to its full potential which requires people having a patient mindset.
What about on the other side of the table. What are you looking for in these companies? What’s a scalable VC-backed company to you?
This is also where we get the luxury of looking at it differently than a typical VC firm that has to pick a very narrow thesis in order to raise capital from wealthy individuals or institutional groups. They have to pick a narrow industry vertical, stage of the company (seed, Series A, B, etc.) and then they usually pick a region. Some of the bigger ones will invest nationally, but anything less than a couple hundred million, and you are likely regionally focused. When they do that, they get this very narrow investment thesis. Whereas the way that we look at it, because we’re building a bigger portfolio, we’re not constrained by that same thesis. So as we examine how to go about leveraging this and looking for companies, the way that we have defined ourselves is that we invest in consumer touching companies which means we invest in products that you use in your everyday life or at work. We want a significant part of our base to be interacting with the product in some way, shape, or form. That could be a direct consumer product or even B2B products since B2B is still humans using the products at their work. If there’s a meaningful consumer touchpoint at home or at work, then we’re interested.
You’ve been a founder a few times. With that experience, what are you really focused on in these next couple of years? What’s critical for you to get right?
The first thing we have to get right is investing the money well. No matter how much money comes in, we have to invest the money right. Without that, Sweater is nothing. We’re already building all the process and infrastructure in now six months in advance, so we hit the ground running and don’t trip over our shoelaces. So we’re getting the right people around the table for that.
Then there’s a big technology component that makes this whole thing work. We’re not using any technology or trying to do anything that’s never been done before from a technological perspective, but we still have to get it right and create a really smooth user experience. A lot of the importance of that is relaying trust to the end consumer. This is a good user experience, good messaging, and there’s transparency through well done reporting so that people are comfortable knowing their money is in good hands.
Outside of work you’re also a triathlete, husband, and a father to five kids. How do you do it all and manage everything?
Work enables us to provide for our families and make a difference in the world. But ultimately, our families are number one. And family includes yourself and your ability to manage your own health. My mom taught me this thing that she pounded into my head when I was a kid - “You always have time for the things you put first.” Meaning your time is your choice, and it always leads back to choices that you make. When I examine my life, I always remind myself that I’m in control of what I do. And when it comes to balancing the things I have to do at work, that’s all resourcing. If we’re working too much or there’s too much on my plate, that means I need to hire more people, which means I need to go raise more money so that I can fund this appropriately. That’s the way that I look at the world, where a lot of people look at it and say you need to squeeze every drop out of the orange. I just don’t believe that. I feel like we just need to balance that for both me and the rest of the team.
In terms of training for Ironman’s, I just have to get it done in the morning. I get up at 4:30 or 5:00 most days and try to knock stuff out before 7:00 so that I can focus on the other things that I have. And at the end of the day, my Ironman training is ranked probably fifth or sixth in my life compared to other elements. It’s kind of my reward for managing everything else well.
Speaking of your kids, what would be the one piece of advice you’d give them in their journeys?
That’s a complicated one to answer but one of the biggest keys in life is truly understanding who you are and why you’re doing what you’re doing. You figure that out about yourself, and everything else falls into place. If you’re lost about that, then your motivation for why you’re suffering through all this other stuff can become unbearable and makes you want to avoid it. But if you really know why you exist and what you’re here to accomplish, then the pain of everything else is worthwhile. If you expect that things are going to be hard, but you have a good reason for why it’s hard and why you should push through it, then it makes the unbearable very bearable. And that will help bring you more happiness
What’s the best book you’ve ever read?
The Hard Thing About Hard Things by Ben Horowitz. It’s so raw and real, and it has to do so much with the managing the people part of running a company and how you can manage the psychology of that.
“You always have time for the things you put first.” That’s tattooed on my forehead.