What’s up, everyone? Today, we’re answering the question: Should you invest in Sweater Ventures?
Sweater Ventures is a newer company that is revolutionizing venture capital.
I want to give you my thoughts on this fund – check out my new video (disclaimer: this is not financial advice).
First, let’s review what a venture capital fund is…
Venture Capital
Traditional VC funds are long-term investments, usually lasting up to 10 years.
Their funds are allocated to early-stage entrepreneurs.
VC funds take equity in exchange for capital and take a seed, series A, or series B position, depending in the company.
These types of funds are riskier than others.
Additionally, they are reserved for accredited investors, meaning people that are worth more than $1M.
Sweater Ventures
Sweater issues shares, which is very different from other VC funds.
They’ll strike a net asset value (NAV) of those shares, which is just unheard of.
Semiannually, Sweater buys 5% of its Cashmere fund back, thus liquidating a portion of their VC fund.
This money, of course, is issued to the shareholders.
Which means…
Any average joe or jill can invest in VC now!
Sweater Fee Structure
Typical VCs have a 2/20 fee structure (2% management fee and 20% performance fee).
Sweater doesn’t do that…
They only charge a 2.5% management fee, but they have a clause that says they can charge up to 5.9%.
In my video, Lincoln Archibald said…
“This is good and bad. If the fund does well, you’ll participate more in the upside. However, the alignment of interest is hard to see here.”
Alignment of Interest = With Sweater’s fee structure, they aren’t as incentivized to make the best investment bringing in more money.
If a fund manager charges performance fees, they are incentivized to make the best investment so they can capitalize on their income potential.
Capital Allocation
In traditional VCs, the investor will commit a certain amount of capital, then dish out pieces at designated times.
Sweater, on the other hand, calls 100% of the investors’ capital upfront.
This is interesting, because on the fund managers’ behalf, this might create a false sense of urgency to invest capital.
In the Sweater app, you can’t choose where your money goes, but you can see where it goes. This includes start-ups and even other VC funds.
One thing I don’t like about Sweater is that they, not the market, calculate NAV daily. The NAV is hard to trust in the first place because it is subjective in nature.
Conclusion
So, should you invest in Sweater Ventures?
I’ll give it a try, but it’s really up to you!
Congratulations to them for changing the VC world!
Check out Fund Launch to learn more about VC funds!
That’s it for today!
Thanks,
Want to get direct guidance for your fund? Schedule a time with my Fund Advisors!
DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the author.