Inclusive investing with Sweater Ventures’ Emma Clark

 

Episode Description:Venture capital investing has traditionally been only for the wealthy and well-connected. Sweater Ventures is out to change that with a new approach that creates opportunity for individual investors to participate in supporting a diverse portfolio of early stage companies. 

Video Highlight: Emma’s mission to make investing more inclusive

Emma Clark’s Bio:

Emma Clark is the Chief Operating Officer at Sweater Ventures and has a wealth of experience across various industries. Previously, she served as Head of Business Operations & Analytics and Chief of Staff, among other positions, at Recurly. Prior to that, she worked as a Product Manager at JPMorgan Chase and started her career at a boutique, women-owned, public relations firm.

She is a founding member of The Old Girls Club, a virtual gathering space for talented women and non-binary people working in male-dominated industries, and holds a B.A. from Duke University. 

 
 

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Full Transcript:

Bobbi Rebell: When it comes to money, I think we can all agree we can never know too much- or if we are being honest have too much but let’s focus here my friends. According to the Society for Human Resource Management the majority of working Americans indicate that the personalization of seminars and webinars on investing basics and financial planning is important to them. And in that same survey they add quote “Employers would be wise to add or expand desirable benefits like financial wellness to attract and retain talent”- in other words- companies need to step it up if they want to get the best people on their team. Financial Wellness Strategies is the solution. We provide the top of the line financial wellness programs for employees to create financial grownups who focus on their jobs, because they know they are in control of their personal finances. Learn more and get in touch at financialwellnessstrategies.com. That’s financialwellnessstrategies.com- The time is now to invest in peace of mind. 

 

Brace yourself my friends because we are going to have a very financial grownup conversation about a topic I don’t think I’ve ever covered here because frankly it is not something that has been available to everyday investors and so it really wasn’t worth talking about. But as we will discuss- now it is. I am talking about venture capital investing- but for mainstream investors not just high net worth investors. What is venture capital investing? Basically, putting money into companies at early stages, often way before they go public. It is high risk. But  can also be  high reward. It may not be right for you but  it is worth learning about.

LEt’s get to this weeks quote: Be so good they can’t ignore you- from the comedian Steve Martin. 

I chose that quote because for women who want to get venture capital funding, or just be in the business, that’s what they have to be these days. So good they can’t be ignored.  We’ll hear more about that from guest Emma Clark. She is the Chief Operating Officer at Sweater Ventures, which I partnered with for this special episode. Emma is going to share some stats that will probably upset you- and that’s not necessarily a bad thing. The good thing is that Emma and the team at Sweater are working to make venture capital investing more inclusive. Let’s get to it. 

Here is Sweater Ventures’  Emma Clark

 

 

Emma Clark, you are a financial grown-up. Welcome to the podcast.

 

Emma Clark:

Thank you for having me on, Bobbi. It's good to see you.

 

Bobbi Rebell:

I am excited to talk to you about inclusive investing and the democratization of investing options. You, as I mentioned, are the COO of Sweater Ventures. So before we get into all that, take us through what is Sweater Ventures.

 

Emma Clark:

Yeah, absolutely. So Sweater is on a mission to make investing more accessible to the everyday person. And so our goal is to open up more specifically venture as an asset class to the everyday person. We do that by allowing anybody to jump onto our platform, learn more about how you invest into venture capital, what the asset class is, what it means to invest into this asset class over a long period of time. We take them through that whole process. They can invest as little as $500. And then we have an investment team that fully manages running due diligence, finding the deals. And then we kind of give you court side seats to get an idea of what it's like to invest into a startup, what the stages of the startup look like. So that's what we are on a mission to do. And I'm happy to chat a little bit more about kind of how we got to where we are today.

 

Bobbi Rebell:

Before we do that, I want to take a step back and explain sort of what is venture capital investing and why has it not been so accessible to people because you have to often be very qualified. Can you explain that?

 

Emma Clark:

 So there's something called accreditation. The accreditation rules have been around since the 1930s after the Great Depression. So the idea was that there, the SEC essentially said there are two groups of people, one that's accredited and one that's not accredited. Accredited, the definition is mostly for the everyday person applies to income. So someone who's accredited, you can have an income of more than $200,000 as an individual. or more than $300,000 as a couple, or you have some serious licenses because you are in the financial services industry. That means that the majority of Americans cannot invest into venture capital because to date, you can only invest into a qualified venture capital fund if you are an accredited investor. So that's been the rule for a long time. And so I think that that has kind of made venture capital this closed off system to most people. Most people don't know much about it. It's a little bit walled off. And part of that is due to the accreditation rules. And part of that is just due to historically how VC investments have been made in the past.

 

Bobbi Rebell:

So how does it actually work? Because when you go to your website, and it's so clear, I love the list of all the different portfolio companies, and those are the companies that you have investments in. It has things like pre-seed, seed. I mean, explain what are the different stages,and how does venture capital investing work?

 

Emma Clark:

Yeah, yeah. So I'll explain a little bit first about how sweater does it. So those accreditation rules that I described are traditionally how what we call private VC funds have operated. And that's under a certain regulatory, I won't go into all the details, but that's under a certain regulation that the traditional venture capital funds, that if you follow that industry at all, you know, the big names like an A16Z or a Sequoia have operated under this rule that says you can only have up to a certain amount of investors in the fund at any time, and they all have to be accredited investors. Sweater operates under a different regulatory world that's a little bit more like a mutual fund. So if you've ever decided to go and make investments in the public markets and investment to stock, you might look at ETFs or mutual funds. And that's a little bit more about how our fund works and why we're able to make it available to those that aren't accredited. So it's not like we're getting around the regulation. doing something illegal, it's very much in the vein of how a mutual fund essentially works. We're just instead saying, all right, great, we'll pull all that capital. And instead of investing on your behalf into public securities, we'll invest that into startups. And so then to kind of come back around to your question around stages, we right now invest into what we consider the earliest stage companies. And so when you look at stages like seed, series A, series B, series C. D, they're continuing companies are staying private for longer and staying in the private markets for longer. So now you're seeing like series E plus, you

could keep going down the alphabet. Really what that is an indicator of is a few things. One, how much revenue that company has, how long it's been in existence and really what the maturity level of it is. So every single time the company, the private company who's raising funds from venture capital is looking at raising another round. And to get to that next round from, let's say, a seed stage company to a series A company, they need to hit a kind of growth metrics to raise more funding. So the way that we evaluate it, just to kind of close that off, is we look at it and say, okay, there are certain things that we're looking for in a seed stage company. That's a very early company. There's a founder. We're looking at their profile. We're looking at their idea. They may not have a lot of revenue yet. but they're going to be at a lower valuation. A series C company, for example, will have certain qualifiers around the amount of revenue that they've generated over time, what their growth metrics look like, what their expenses and burn rate look like. And so there's just different metrics that a venture investor looks at, depending upon the stage of the company.

 

Bobbi Rebell:

why would somebody want to invest in a company that's not yet public? Because you mentioned companies are staying private for longer. So these are companies that if you were not accredited previously might not have been accessible to the everyday investor. But why does the everyday investor want that? I mean, traditionally, they might be very risky, which is why you had this accreditation barrier up there.

 

Emma Clark:

No, that's a great question. And that is one of the reasons why the accreditation rules exist. But I think that there's two ways to think about this in my mind. One, those accreditation rules existed in a time when information was not readily accessible and technology wasn't at a place yet where you could make it accessible to retail investors. What I'm really saying is there's institutional investors. Those are, you know, think about those like university endowments or pension funds. And then there's the everyday person. Historically, public market investing started with institutional investors only. And then it started to move over to the retail market once there was technology to allow that to happen at a more rapid pace. We see that happening in the venture market. So historically, it's been either very wealthy individuals or. institutional investors. And now that with the right level of regulation, and that's why we leverage the fund structure we do, because it's heavily regulated and we have to provide a lot more information upfront, and with technology and access to information, we believe that the retail investor absolutely has all of the resources to make the decisions, smart decisions around investing into venture. So that's one piece. I think the second piece is... just like the concept of venture being a risky asset class, it absolutely can be. I'm not going to say otherwise, but there are ways just like any risk in investing that you can mitigate that. And part of that is diversification. And so the reason that a retail investor might, I'm never going to go to an individual investor and say, yeah, put all of your money and savings into venture capital. That is not a smart solution. And that's never something that we would recommend. But just like if you go to any, you know, if you went to any investment advisor, they're going to talk to you a lot about diversification. How do you diversify the portfolio of savings that you have if you want to invest into the markets? And so venture has a few benefits from that. The first is it has really strong historical returns. So even in the last call it the period from 2007 to 2022. Um, we saw that Ventra as an asset class exceeded the performance in the S and P 500 by three X. And so it does have very strong returns overall as an asset class. The other thing that you talked about, Bobby, was companies are staying private longer. And so what you see is there's now an average of a company from start to the time it goes public is seven years. that is continuing to increase over time. And so you have these, you have these examples of companies that most of their growth years, the years where they're really accelerating growth are in the private markets, and then they go public. And then what happens is all of the best returns from that company are returned to the private market investors, not to the public market investors, because they've

hit this trajectory. They've gone like this, and then they had the public markets and then they just kind of steady growth. So companies like Rivian, Coinbase, Lyft, Uber, those are all examples

companies that saw really strong private market growth. And then it kind of had lackluster public, you know, I, you know, initial public offering performance. So that's the other reason you would look at it. And then the last thing I'd say is just diversification. So just like we talk about diversifying any portfolio, there, there's a lot of data that shows that there's not often a huge correlation. and return profiles between the public markets and stocks and the private markets. And so sometimes when the public markets aren't doing well, it's a great time to get into the private markets. And so if you think about taking a small portion of your investment and putting it into private markets, it helps you diversify your entire portfolio, especially in years when the public markets may not be doing as well. So that's kind of how we think about it.

 

Bobbi Rebell:

Tell me about the criteria that you use to select your portfolio companies because it is a unique perspective.

 

Emma Clark:

For our fund, so we talk about it like an investment thesis. And for us, because every, every traditional venture capital fund out there has what they consider an investment thesis, or I would say 95% of them do. And that helps them hone in on saying, these are the types of companies that we invest into. Some of them might be focused on climate technology. Some of them might be focused on consumer goods. Some are focused on software. We instead look across industries, but our main focus is what we call kind of community-driven. So there are companies that the everyday person, you, Bobbi, myself can purchase, can promote, can use. And the idea is that if I'm going to be an active investor into this fund, I want to invest in companies that I understand the problem statement for. Or if it's not me who would use it, maybe it's my husband or my children or my... mom and dad, there are things that I can understand will have an impact on the world that I live in. And so that tends to track a little bit more kind of B2C companies, but that's not always the case. So we have fantastic companies like Graza, who's an olive oil company that's all over

Whole Foods and everywhere else, if you've seen it, to Go, which is essentially trying to replace the leasing market for cars. And so that's... That's essentially our investment thesis. When it comes to criteria of how we assess a company, that's a little bit different, and it kind of depends on the stage.

 

Bobbi Rebell:

and we'll leave a link to the page that you have with all of the different portfolio companies.

I loved perusing this page because when you click on the companies, a lot of the time, either somebody from Sweater or somebody from the company has a video basically explaining why Sweater invested in this company, why they like it, the different attributes, maybe a little bit of a sneak peek into where the company's going, and it really makes you feel connected and understand where your money's actually going.

 

Emma Clark:

Yeah, that's the goal. I mean, a part of this is not only us being able to make good investments for the people who are putting money into the fund, but there's an educational component to it as well. And not everyone out there, regardless of whether or not you're accredited, even if you're an accredited investor, going and finding the companies to put money into, running the diligence on them to make sure they're good investments, and then being able to see that company grow. That's a decent amount of work. For us, what we want to do is give people what I said, this kind of front row seat to understand what early stage companies look like, what growth looks like. What does it look like to be a founder of one of these companies? So they can understand the journey from start to finish. So we will continue to put out great resources on these companies so that our community of investors and even non-investors can follow along.

 

Bobbi Rebell:

You do a great job connecting with people. And I know Sweater also gets out there with events where they're looking for companies to invest in. You do barn burner events and other things. Tell us a little bit about that and where we can learn more about Sweater and about you, Emma.

 

Emma Clark:

Yeah, yeah. So yes, that's funny. I didn't even introduce my background. So I came about, so I'll do a little bit of that and then I'll talk a little about Barnburner. So I have been at Sweater for about two years. And the main reason that my background is mostly in operating and fintech. And I was always really passionate. I was on the other side of the fence and there's an operator going out fundraising for the last company that I was at. And every time I looked around, I was the only woman in the room. And for me, that was just, maybe appalling is the wrong word, but just confusing. I didn't understand why there weren't more women in venture. And as I started to go down this lane of doing some more research around what the ecosystem looked like for women in the venture landscape, and by that, I mean the number of women who invest into venture capital funds, then the number of women who are decision makers in those VC funds. And then also the number of female founders, the numbers were not great. So, you know, it's women founded startups, raised less than 2% of all VC funds. And then in terms of US based VC partners, less than 5% of women, really they make up, women make up less than 5% of those funds and make up even less in terms of the decision makers within those funds. And so for me, When I joined Sweater, a big piece of helping build this mission from the start was by providing access to everybody to invest into this venture asset class. No longer kind of became an old boys club. So VC is a very closed system. It's like, hey, who do you know? You know, tap someone on the shoulder. Do you happen to know someone who has a good deal and only pass it to my buddy over here? And if you think about the last 50 years of finance, a lot of that has been who you know. And it started with being a primarily male. And so as we want to introduce and provide more opportunities for fantastic females out there that I know are starting good companies that I know would be great VC investors, I know would be good investors into venture as an asset class, I fundamentally believe that sweater by opening up to everybody is helping with that mission. And so that's my motivation and why I'm passionate about what we're building. So I say that because I think it's important to just kind of understand why. Yes, we want this asset class to be open to everyone, but what that fundamentally means for access to and truly democratizing venture capital. So the second piece of your question around barn burners. So this is actually a little bit a piece of that mission, which is around founders being able to get funding. So if you're an early stage company going out and getting venture capital funding right now is difficult. And so... we have created something called these barn burner pitch competitions. And the idea is that we allow the public to vote on the companies that they like best. And so we do this with some guardrails because we understand that not everybody knows, you know, how would you assess a good investment for a private company? So what we do is we have our investment team do some vetting and due diligence. And then we have the public either vote on the beginning half of that to get the founders to the final stage where they pitch the public, or we do it the other way around where we have our VC, our investors run your diligence, and then they push three companies to the stage and people get to vote on who they want to win. Winning for a company means anywhere between a $250,000 and $500,000 check into their business, which for a really early stage company is very meaningful because often these founders don't have that capital readily available to them. So these are exciting ways for us to provide more access to venture capital funding for founders but also a great way for individuals who maybe the people who are watching Shark Tank right now, right? To go in and actually be able to vote on these companies and watch the pitches and understand what these founders' stories are like.

 

Bobbi Rebell:

Love it. Thank you so much Emma!

 

Emma Clark:

thank you so much for having me, Bobby. I am glad to be considered a financial grownup. I will try to uphold that title well. And thank you as always.

 

Bobbi Rebell:

We all want to live our best financial grownup lives and one way to do that is to know that the people we care about are also in a good place when it comes to their money. That might mean our kids, our grandkids and yes- even our friends. But how. Its’ awkward. You see them struggling- pretending to know more than they do- or making bad money decisions but don’t know what to say- and even if you say something supportive- then what? That’s why I wrote Launching Financial Grownups. In Launching Financial Grownups I share the tools and strategies so you know what to say to take the pressure off and give those you love the confidence they need. It's about giving those we care about the right amount of help, at the right time- so they can not only learn what they need to know about being financial grownups- but also be confident they can do it- and that you will be there to cheer them on. Pick up a copy of Launching Financial Grownups - I promise you will be so happy you did. 

 

Wellness for Financial Grownups is a production of BRK Media. Editing and production by Steve Stewart, guest coordination, social media support, and show notes by Alliee Borbon. Artwork by Chelsea Perez. You can find the podcast show notes, which include links to resources mentioned in the show, as well as show transcripts by going to my website, bobbirebell.com. 

To get even more out of this podcast, make sure you are also on our newsletter list to get more free content to live your best financial lives. There is a link in the show notes but you can also sign up at bobbirebell.com or at financialwellnessstrategies.com. And be a friend- share the podcast with your friends by taking a screenshot and sharing it on social media. Make sure to tag me on instagram at bobbirebell1. And while your there- follow me- and if you DM me that you listen to the podcast I will follow you back. You can also leave a review on Apple Podcasts. Reading each one means the world to me. You can also support our merch shop, grownupgear.com by picking up fun gifts for your grownup friends and treating yourself as well. And finally my grownup friends, don’t forget to invest in peace of mind. Thanks everyone.

 
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