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- [00:00]
Michael Batnik
Today's Animal Spirits Talk. Your book is brought to you by the Cashmere fund. Go to thecashmerefund.com to learn more how you can invest in venture capital in a retail product ticker CSHMX. That's the cashmerefund.com to learn more.
- [00:18]
Ben Carlson
Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Red Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.
- [00:47]
Michael Batnik
Welcome to Animal Spirits with Michael and Ben. Michael, one of the things you and I have been talking about on the show and internally off air, I guess, is just the explosion in private assets that are coming. For financial advisors and retail investors, it seems like it's already starting, started, but it's. It's only going to get bigger because fund companies are now figuring out, let's take away a lot of the bad operational stuff about running funds, the capital calls, the distributions, all this, the stuff that individuals are just never going to be able to administer like institutions can. And let's make it more of these evergreen funds, rolling funds, what are the Internet interval funds, and make it easier and just make it a wrapper and give you a little bit of liquidity. And I think that that sort of thing is going to become more and more commonplace as we go along.
- [01:39]
Elliot Infischelli
Yeah, there is an inevitability that the lines will start to blur. The convergence of public and private markets is definitely a thing. And I think for the end investor, they have to understand the risks and the rewards, the lack of liquidity, how this fits inside their portfolio, what is actually happening, what do the fee structures look like? What does success look like? All of those things to determine whether or not this is a suitable investment for themselves. So I am really bullish on like education in the space.
- [02:09]
Michael Batnik
Yes.
- [02:09]
Elliot Infischelli
Because I think there's just a large gap of investing in an interval fund like the one that we're talking about today. How many people know what an interval fund is? How many people have invested in one? Very few.
- [02:19]
Ben Carlson
Right.
- [02:20]
Michael Batnik
This is something probably a lot of advisors don't even have experience with.
- [02:23]
Elliot Infischelli
Yeah. So on the conversation today that we had, which I had a lot of fun with because Aaliyah has a very interesting background, he started at, I don't know if he started, but he was at Endeavor, the talent agency, worked for Ari Emanuel, got the bug of investing, and did that for a couple of years before starting to do this formally. So their whole thing is networking and finding people of influence, whether it's the founders or the investors or the partners to distribute this. Like, they are very much leaning into the fact that people trust people and brands as opposed to, like, the incumbents.
- [02:58]
Michael Batnik
And being a talent agent is a lot like being a VC in terms of the networking piece. And yes, we talked to Elia and Fishelli, who is a partner and CEO at the Cashmere Fund. They have Josh Allen of the Buffalo Bills as a partner investor in the fund.
- [03:11]
Elliot Infischelli
Oh, you know what? On this conversation, I almost forgot about this afterwards. I was thinking, wait, did I. Did I say the name wrong? I said I think I called Norman Osborne from Spider Man. I think I called him Norman Oswald on this episode.
- [03:23]
Michael Batnik
Maybe that's why it went wrong.
- [03:24]
Elliot Infischelli
Did I call him Norman Oswald? I think I did. And if I didn't disregard, we'll find out.
- [03:28]
Michael Batnik
It would have been really awkward if you messed up a movie line when we talked to someone from the entertainment business.
- [03:32]
Elliot Infischelli
I think I did. I think I did.
- [03:33]
Michael Batnik
It's okay. We'll let it slide. So anyway, we talk. They have a venture capital fund that is available to people in a. What do you call it, a 40x fund. Is that correct or not?
- [03:44]
Elliot Infischelli
Yes, correct. Terminology minimums are what, like 500 bucks? Like something.
- [03:49]
Michael Batnik
Yes, it's very. Yeah. So anyway, interesting conversation to learn how they're doing and the types of companies that they're looking to partner with. And it definitely has his time as a talent agent. Definitely colors the way that this fund invests as well. It's very interesting. So here is our talk with Elliot Infischelli of the Cashmere Fund. So, e, you have. We've been told you have an influential quarterback on your roster in Josh. And I just want to protest this because he kicked the crap out of the Detroit Lions last week, who I'm a fan of. So I take umbrage with this, but I'm curious how that all came to be, that Josh Allen is on board with the Cashmere Fund.
- [04:33]
Ben Carlson
Yeah, that's a great question. We started a lot of the partners at Cashmere. We started a venture capital fund a few years ago, and a lot of the thesis of the fund was to deploy capital and influence in consumer brands, or mostly consumer brands. We really did sports, health and wellness. And at the time, we had done a lot of angel investing. And we came from the sports and entertainment side. One of our partners comes from the finance side. We didn't have a kind of formal kind of VC background. So as we were putting the fund together and we really leaned on kind of our unique value prop of the influence kind of driven model of deploying saying influential people coming on cap table, influential people that can start brands that we can back, et cetera, et cetera. And Josh was very close with one of our partners and we'd reached out as most people, first time VC guys and girls know, kind of, kind of do like friends and family. That's how you start fundraising. And Josh was incredibly gracious to us and he said, you know, I believe in what you're doing. I believe in you guys as people. Let me, let me write a check. So he became the first check in our venture fund, which is kind of form of capital, which is the first fund that we raised kind of pre, pre Kashmir. And he's been an awesome supporter ever since. When we started the Cashmere Fund, he was, you know, it was kind of the same thing that we still have this kind of idea of deploying capital and influence. We actually use the wording, kind of compound influence. And, and he kind of said the same thing, you know, love what you guys are doing. And I think he's, he's a, he's a real, he loves VC and you know, he decided to join us again, which was awesome.
- [06:00]
Elliot Infischelli
So before we get into the fund and the opportunities and the, the investors that you're allowing into it, because it is a unique structure, talk about your background. You're not a, you're not a finance guy, you're not a venture guy. You start, you got your career started in Hollywood. So how did you make the leap from advising talent and doing that sort of stuff to, to hear.
- [06:20]
Ben Carlson
Yeah, that's a great question. It was kind of an, there was an interim step for me. I was, I was a traditional agent, I would say I was an agent at a traditional company called Endeavor. And I was an agent for kind of agency for the first like 10 years of my career there. And I had, I think I had a little bit more of an entrepreneurial itch than most people there. And I really started seeing the kind of social media and the effect that influential people can have through having really for the first time a direct connection with people through social media. Right before it was really disintermediated, they had to go to a network or to a studio to kind of speak to their audience. And when Endeavor Actually merged with William Morris, which was 2009. There was an aha moment for me that was like, I don't want to be an agent anymore, but, like, I want to go build things with these people that are highly influential and now have a direct connection with consumers. Right? And my boss at the time, Ari, was incredibly gracious and said, you know, let's. Let's go build this thing. Let's. Let's see what it looks like.
- [07:16]
Elliot Infischelli
You could say. You could say his last name.
- [07:18]
Ben Carlson
His name's Ari Emanuel. And. And what we did is we eventually became the Brand Ventures group, but we started incubating. Like, what. What does this look like? How do. How can we help talent kind of like, build their own entities? And the first guy that we helped, it was like, an incredible, like, few years, was Dwayne Johnson. So basically, he had a number of endorsement deals, and he was a big deal back then. He was a huge deal now. And, you know, those. Those were deals that paid him, you know, multiple, you know, million. You know, do a social post or show up or something. And basically we went and we just said, you know, do you want to go build something? Do you want to own something? And I think that was obviously something that was in the back of his mind already. We weren't. We. We weren't the catalyst, so we can't take credit for it. And he was awesome. He was like, yeah, let's do it. And, you know, we had an ad agency called Droga5, which is an internal asset of the company. And basically we acted as an incubator for him. We just said, let us. Let us build a brand for you right with you. And we created the whole kind of ecosystem, and that became Project Rock, which was the first owned brand that he. That he. And then eventually opened up kind of the world. So for me, it was kind of like an interim step. I went into incubating creative brand Ventures. Then eventually I left in 2017 just to invest. And I knew that my life was. I love to invest over Incubate, although I kind of have a soft spot for that. And I joined up with a bunch of partners, and basically we just started investing from then on.
- [08:35]
Michael Batnik
I have this joke that in, like, the 90s and early 2000s, every professional basketball player wanted to be a rapper, and every rapper wanted to be an actor. And a lot of them try to do these things. And now.
- [08:46]
Elliot Infischelli
Timeout. Did you act like you just made that up?
- [08:48]
Michael Batnik
I have the tweets to back this up. Don't even. Don't Go there. This is a long time ago.
- [08:53]
Elliot Infischelli
You also invent the question mark, so.
- [08:55]
Michael Batnik
But now the point is, all NBA players and all rappers and all actors, they want to be VCs or run businesses or have brands. And I'm just curious how you've seen that evolve in terms of the entertainment space with these people just being way more aware of everything outside of the business and creating these own. Like, they're their own business and brand now. I'm sure. I'm curious how that's evolved over the years.
- [09:19]
Ben Carlson
Yeah, I think totally. I think that Jay Z, you know, I'm a businessman, I think, resonates to a lot of people. I think it comes down a lot to, like, the scale of social media, right? Like, when it started happening, I'd say, like, in the. Probably in the early aughts at some point, you know, and people saw what Dre did with Beats and what Jessica Alba did with Honest Company, they were like, oh, man, I can use. If I have social and I can connect with people, Dre, like, I can go build something that's incredibly valuable. So I think that was. That was obviously the start of brands, and I think that's evolved a little bit into. From just creating a brand to creating, you know, to be in the investment space, right? Like what Jay Z and Serena Williams and some other kind of celebrities have done. I think they have the power to do that. Right. I think. I think talent are becoming brands. You look at the podcasting space, like, you guys, you know, like, you can create a brand on your own. You don't need a distribution partner. You don't need someone else that. That can kind of dictate what is successful or not. If you're good and you have, you know, direct connection with consumers and a good idea and really the willingness to do it, like, sky's the limit.
- [10:19]
Elliot Infischelli
Yeah, that's certainly true. The however that I would be curious to hear your take on and how you sift through this is that influence is maybe a prerequisite, but it's not enough on its own, like, 100%. Right. It's just table stakes. Like, okay, fine, you have influence, but let's are product bullshit. Is it great? Like, how great? How. How big can it be? How do we get to market? How do you not take advantage of the audience? You can only go back to that wall so many times. So how do you think about wrapping a product or service an idea around the idea of influence?
- [10:49]
Ben Carlson
Yeah, that's a great question that we really try and unpack and get Better at every day. Right. We think we have a significant advantage because we've been doing it for a decade plus. But nonetheless, I think it's an evolving business. I would say the table stakes are that. I would say the table stakes is also authenticity. Does someone really care about a product you look at, you know, like hawk to a coin. Yeah, exactly, exactly.
- [11:14]
Michael Batnik
Who could have seen that coming?
- [11:15]
Ben Carlson
Yeah. I have no words. You know, you look at. You look at some of, you know, we're invested in, for example, like this wa, which is Katy Perry is nonalcoholic sparkling wine. Like, you know, when we saw her. And you see the amount of effort that goes into it and the things that she does and, you know, the rights that she gives the brand and the support that it's like, pretty. You can't doubt the fact that she's in it to win it. And, like, this is her life and is it her legacy? I don't know. Maybe. Right. And there's a lot of people that do that. And Selena Gomez with rarely. And then on the other hand, there's a lot of money grabs. And by the way, some of them work, but most of them don't. Right.
- [11:49]
Elliot Infischelli
I'm sure you've seen a million examples of, like, okay, this person, they have fame. They have this. But they might have had influence, but they lost it because they did too. They spread themselves too thin. They were just cash grabs. They didn't. They're pat. It wasn't their passion project. So I think probably from your point of view, you know what that looks like, you know, who's been to the well too many times and, you know, who's, like, doing something that, like, they actually. They actually care about 100%.
- [12:14]
Ben Carlson
We think, you know, we think we have better data than. Than most entities in this space. Right. We've been. We're five partners. Four out of the five come from sports and entertainment. We've been in the business for 25 years plus each. And we have good networks, good relationship with the agents, the managers, the talent, the athletes, et cetera. And we think that we can kind of ascertain better than most, you know, is, are these people, do they have the drive, Are they authentically engaged in what they're doing? Are their management teams supportive of those endeavors? You know, kind of, et cetera, et cetera. Will they go above and beyond? It's also really interesting you said something also about who are the right people to also do this. One area that we're leaning into, and also to your previous question about A quarterback is, you know, there's, there's a lot of athletes that also have a very finite shelf life. Right. So it's like you think they're like the megastars they're making, you know, they have two $300 million contracts, $100 million contracts over, you know, five years plus, and then all of a sudden it's over. Right. Like, sure, they have endorsements and you know, they can go and have like big speaking engagements, et cetera, et cetera, but effectively like their day job is gone and you know, they're highly influential. What, what do they do next? So that's also an area where we're spending a lot of time and in and on and figuring out like, how do you, how do you, how do you really kind of like create longevity with those athletes?
- [13:31]
Michael Batnik
I'm curious, before the Cashmere Fund, were you doing this in a typical GP structure of a VC fund? Were you doing one off deals? How did this evolve for you as an investor over time?
- [13:42]
Ben Carlson
Yeah, Former Capital is a traditional venture fund. So we're 2 in 20 model and traditional GP structure. What was interesting to us is just the ability to reach consumers at scale. So think about our kind of value prop. Aside from the deployment of capital, which is a huge pillar for us, we're really trying to deploy influence at scale in a smart way. And being able to have, you know, the Cash Burner Fund right now, it's kind of still in its nascent stages And I think 2025 will be a big year for us. We'll go from a DTC brand to an omnichannel brand. And we already have 5,000 investors, 5,000 retail investors. Like just having the ability to kind of take that investor base and really create a community around them and a community around the brands that we invest in. You know, how can you activate and how can you have them like organically be engaged in evangelists of these brands? That's what's really got us excited about the model of creat, kind of this dtc, you know, low investment minimum. And having this engaged community really drive a little bit. Like we're a very different entity. But look at what Robinhood started doing, you know, four or five, six years ago or four years ago at scale. You know, they built a platform way, way beyond that. Like that's inspiring us to us. Like, how can you create a community around people that are, that are backing these companies?
- [14:55]
Elliot Infischelli
So we'll, we'll spend a lot of time talking about that idea and what you're Doing. But before we get there, I'm just curious. So you have an incredible network of highly influential people. Does that mean that the companies that you're investing are led by influential people or. Not necessarily. It's just that they're, they're somehow, somehow you got connected or they've got a back or like talk more about these type of companies.
- [15:17]
Ben Carlson
Yeah, great question. It's a nice to have. Right. We're not going to look at our portfolio. We have 38 investments right now. 34 are direct investments for funds of funds we don't want to see. And ideally we want to get somewhere between 100 and 200 investments in the next two, three years. We're not going to look back and say like, wow, we have, you know, 150% of the portfolio that's, that's led by influential people. When there are those opportunities. We think we have better data to ascertain if those are good investments. Like Katy Perry is a kind of a good example. We think that's.
- [15:48]
Elliot Infischelli
How do you have better data? You've said that twice now. I'm curious, what do you mean about that?
- [15:51]
Ben Carlson
Well, first of all, we have access to their networks, right? So a lot of, a lot of times we know the people, the talent and the athletes directly and you know, that means a lot, right? You know, person you kind of know, you know, or they are, is their heart in the right place to build this? You know, are they doing it just for the money or are they doing for legacy or are they doing it for their kid or doing it for something else? A lot of it is really knowing the people around them. And let me tell you, a lot of these people have a lot of people around them and a lot of times it's a good thing, right? Business managers and agents and managers and assistants and everyone kind of typically has a say, which again, not a bad thing. So really also understanding the ecosystem that they live and breathe and you know, what are they doing on a day to day basis, you know, do they just want to, you know, play golf, you know, 36 holes a day and really just like at some point do they get a text from their manager being like, oh, you forgot to text your contractual text about the brand or do they wake up, you know, Ryan Reynolds, right? We're not invested in Ryan, but like.
- [16:43]
Elliot Infischelli
That guy, don't get Ben started. Ben is a huge Ryan Reynolds.
- [16:46]
Michael Batnik
Stan, Michael's had a paper shot on Ryan Re for like three years and been wrong. I've been, I've been just raking it in.
- [16:52]
Elliot Infischelli
I'm equal weight. Ryan Reynolds, not short. Actually maybe slightly underweight if I'm being honest.
- [16:57]
Michael Batnik
So I'm curious how the Cashmere Fund came about then because this is a very unique fund structure. So I'm curious how this, this whole thing evolved.
- [17:05]
Ben Carlson
Yeah, so basically the premise was we believe roughly 99% of people in the US have not had access to venture capital. And that's really because of an accreditation issue. Minimum six figure check, no liquidity, not being able to. It's 10 year time horizon. There was a lot of massive hurdles for the everyday retail investor to be in the space. So we spent a lot of time really trying to figure out is there a way to create an ecosystem in which a retail investor can invest. And we did that and we really, really tried to look at like how do we remove the barriers to entry into this asset class that has really overperformed most major indexes over the last three, five, 10, 20 years. It's an asset class that really should, people should be into. The biggest one or one of the biggest ones was accreditation requirements. Over 80% of the US population is not accredited. So effectively four out of five people didn't do that. So we created a fund. Technically we're an interval fund, part of a mutual fund ecosystem. And that allowed us to take capital investments from retail investments, which was a huge priority for us too is low minimum investments. We have a $500 minimum investment. That was kind of huge for us. And then we have liquidity. Right. So you can, you know, if something comes up. First of all, we're an evergreen fund so you can invest in the fund and two years later, three years later you can exit the fund. We have redemption windows without any penalty. So you can also have it as a 2, 3, 4, 5 year investment, et cetera, et cetera. It was a very, very heavy lift from a tech stack standpoint. It just didn't exist. We kind of had to create how do you onboard thousands of investors in a very time and cost efficient way. So we had to create kind of custom integrations of how do you to be able to do that. And that was ultimately kind of the goal is how do you create this, how do you give access to this asset class?
- [19:02]
Michael Batnik
How did you get around the rules and regulations for this that you don't have to be accredited to invest in the fund.
- [19:06]
Ben Carlson
So technically we abide by the kind of the 1940s and the 1933 Act Fund and by doing those two things you can raise capital from non accredited investors. There's about just Under, I think 100 interval funds in the U.S. most of them often, I think 97% of them are not in venture capital. Right. They're typically real estate driven, credit driven, I think in large part because they're, they're a heavy lift. They're expensive to run, they're expensive to set up. And you know, venture typically is, you know, you start with a smaller fund and you know, it was a, it's, it was a big risk and kind of a heavy lift for us to be able to kind of put that capital and create that tech stack and kind of create everything around it. But, you know, technically we're an SEC registered entity. Again, we have pretty high, high bar of, of regulation, which is just something that we live in. It's also huge kind of positive for the people that invest with us because there's real visibility into the portfolio. And you know, we have yearly audits and quarterly audits and everything's very transparent. So not only do we, yes, it's a little bit of a burden on us, but also it's a, it's a real value add to the, to the consumers.
- [20:10]
Elliot Infischelli
Let me ask a cynical question. Going downstream, instead of doing what the traditional route is, which is you raise money from rich people, you take two and 20, you keep it to a limited number of LPs. Why, like is there any sort of adverse selection or anything? Like when, when you get this sort of question, how do you answer it?
- [20:33]
Ben Carlson
Let me clarify the question. Is the question.
- [20:35]
Elliot Infischelli
It wasn't, it wasn't a great question. It was a bit rambling.
- [20:36]
Ben Carlson
No, no, go ahead.
- [20:38]
Elliot Infischelli
So how did you interpret my question? My bad question.
- [20:41]
Ben Carlson
Can you become a successful venture fund by starting with 500 checks?
- [20:45]
Elliot Infischelli
Sure.
- [20:46]
Ben Carlson
The vision was always to start as a DTC brand. As with we're DTC fund, but effectively we're a DTC brand. I think most brands today are not dtc. Right. They're omnichannel. But you start with a kind of loyal customer base on a DTC side. And that was basically what the Cashmere Fund is. So we started a couple of years ago, we raised, you know, 50 million plus or, sorry, the value of the fund is 50 million plus. It was a little bit less, but we've performed. So the value of the fund is now over 50 million. And we did it through 5,000 investors. The future of the fund is to become an omnichannel. So 2025, we have a number of distribution partners that are, that we're on, that we're onboarding with. So for example, in January we're launching with one of the kind of major brokerages in the US that have 10 million customers. Right. Like the customer acquisition journey with those partners is much more efficient, just like any other business. Right. Like you look at a consumer brand, they're going to go dtc, but at some point they're going to talk to you about how do we get into Target, how we, how do we get into Walmart, etc. Etc. And that's really the stage where we're at. We're transitioning from a DTC to an omnichannel brand and we're having those partners onboarded really in 24 that are launching on 25.
- [21:53]
Elliot Infischelli
So you anticipate multiple different chassis or different types of investment vehicles. Are they all going to share the same underlying investments? In other words, I'm going to ask a very question that is an easy softball for you. Are the $500 checks going to get the same great investments that the $5 million checks are?
- [22:12]
Ben Carlson
Yes, the fund is the same. I think what we. So right now we have one share class in the fund and I think at some point what we'll probably do, if the check sizes get very, very large, which obviously we hope we do, we'll probably just create separate share classes to make sure that the kind of incentives are aligned across the board. But the underlying fund portfolio will be the same for everyone.
- [22:34]
Michael Batnik
The evergreen structure obviously makes a lot of sense for retail because you don't want to be chasing down retail for capital calls and distributions and that it's just an operationally inefficient way to run a fund. But how do you deal with the time horizon mismatch and liquidity mismatch when I assume most of these investments are made for 5, 7, 10 plus years in some cases. But there's, there's, I don't know, daily liquidity or quarterly liquidity. How does that work?
- [22:57]
Ben Carlson
Yeah, so we strike nav daily. So you can see the value of the fund from a, from a daily basis. As far as liquidity, you know, we're, we're creating, we're getting an asset class that is highly illiquid, right? Like basically liquidated once every 10 years. And we're making it as liquid as possible. Today we have bi yearly redemption windows. So those redemption windows are 5% of the fund twice per year. So we redeem out a total a max of 10% of the fund per year. And then we have a distribution window, potential distribution window at the end of Each year. So there's really three potential liquidity windows or redemption windows for us. So that's kind of the, I would say the quote unquote exit mechanism. You know, customers on board and then they exit through those redemption windows. The fund has been performing quite well. So we've been lucky that a lot of we've had I think four redemption windows. Out of those four, three have been over subscribed, which is 100% the norm kind of in these funds. Because again that's how you kind of get liquidity out of it and then one hasn't, which is kind of a real exception. Something that like actually we pride ourselves. So there's, so that's currently the liquidity mechanism for the fund.
- [24:04]
Elliot Infischelli
I'm very curious, how does the, how does the nav work? Like what is. So the price, I'm making this up, the price was $20 yesterday for the shares and now it's $20.05 and then tomorrow it's $19.85. How does that mechanism work? Like who's setting those prices? Is it just buyers and sellers or. Talk us through that.
- [24:24]
Ben Carlson
Yeah, so, so you can only buy the shares of the fund through us. So we're like closed ended, fundamental in that respect. So there's no, there's no trading of the fund assets on a public market. We are NASDAQ listed, but we're not traded on nasdaq, which we see very much as a positive. So there's, it's a very stable kind of asset. Right. There's, there's no activist investors and the share doesn't go up and down by 10% etc. Etc. So kind of that, that's, that, that's the positive kind of, of the fund.
- [24:50]
Elliot Infischelli
So you guys are setting the price on a daily basis?
- [24:53]
Ben Carlson
Yeah, we're setting the, the price of the fund based on the underlying asset. So what we do is we audit the. So we operate under Level 3 accounting, which more stringent accounting level than any. The kind of traditional venture funds, two and 20 models. You know, that's a little bit of a negative for us because it takes kind of more bodies and kind of back office to be able to do that. That's a positive for retail investors because they really. The value of the asset is, is, is actually valued quite accurately from a venture level, which is quite rare. So what we do is we audit the full, the full portfolio once a year in March and then we do monthly updates based on what the, what the portfolio companies give us as far as information.
- [25:32]
Elliot Infischelli
So so if you have an up round that way through into the nav, 100% and if you have. All right, so what happens in the case that there's an exit? And let's say it's three years down the road, so there's, there's existing shareholders that have been in the fund the entire time and then somebody comes in three years later, a month before a deal closes, do they get the same benefit as the early investors or. I guess in theory the NAV would be higher.
- [25:56]
Ben Carlson
They do if there has not been a bump in NAV along the way. But that's typically not the way that it's done because we get kind of quarterly updates from the.
- [26:04]
Elliot Infischelli
Because typically there's like step ups before there's an exit.
- [26:06]
Ben Carlson
Of course. That's right. That's right.
- [26:07]
Elliot Infischelli
But theoretically, if it was just in the unlikely event that the company did so well that they raised their seed round and they never had to raise another dollar of capital, which I know is unlikely or rare, theoretically the new investor would get the same benefit as people that have been holding that company for a couple of years.
- [26:24]
Ben Carlson
Theoretically, yes, highly unlikely because we have information reports that come on a quarterly basis when we, we adjust value of the, of the asset. But yes.
- [26:33]
Elliot Infischelli
So you would mark the company up even if they hadn't officially raised money. Because if you invest at a seed round, then there's literally $0 of revenue and all of a sudden, three years later, not all of a sudden, three years later, the company's doing $10 million in revenue, you're going to mark that position up even if there hadn't been a round raised?
- [26:47]
Ben Carlson
That's right. I'll give you an example. There's a, there's a company we invested in, a consumer brand in our portfolio that we invested in. I think they were doing 11 million in revenue when we invested two years ago, year and a half. Two years ago they just announced that they're going to do that. They've done 60 million in revenue this year. There's been no. Kind of, there's kind of been no. And by the way, we also look at projections, right? Like, kind of like what is the run rate and what does 2025 going to look like? So we take all the information and then based on that, you know, we adjust the value of, of the, of the portfolio company and therefore the NAV changes. And that's a positive. We think it's a positive again, one for the early investors, but two, also for the visibility of the, of the fund and its assets.
- [27:26]
Michael Batnik
Does do the companies that you invest in end up being a lot of consumer facing brands? Is that the, the general focus or do you have a wider focus on that?
- [27:33]
Ben Carlson
Yeah, that's a great question. So we, you know we have this compound influence thesis that is, is really kind of more specific to the, to the consumer and consumer brand. So we over index a little bit in consumer. It's about 40% of the portfolio today and we really like that. Right. Like when we onboard influential people and investors and athletes, et cetera, we think that those people can really have a positive effect on the portfolio. How the fund is positioned today and the remaining 60% is quite diversified. So we're in healthcare, B2B, SAS, kind of etc. How we're positioning the portfolio and how we think it's kind of positioned so far is we want to be the first check that anyone has in venture capital from a retail investor standpoint. So the 99% of people that have never been into venture, we believe that they should invest in venture. We believe we are a great option for them to invest in venture. And we want that venture asset to be highly diversified, almost track the asset class, right? So like if you're investing in us, you're kind of, you have a macro kind of exposure to the venture, to the venture fund. So for fund one, this is what we're building, right. So there are areas of business that we are still not invested in that we will invest in. But we really want to track kind of portfolio with a little bit of an emphasis in consumer because we think it's just a value add for, for kind of the value prop in the investment thesis that we have cap.
- [28:47]
Elliot Infischelli
So I'm something of a venture capitalist myself, to quote the great Norman Oswald. What's the name of that movie? Anyway, so we, we, we raised a fund a couple years ago.
- [28:57]
Michael Batnik
Are you quoting Wayne's World again? I don't know.
- [28:59]
Elliot Infischelli
What? No. Spider Man. Spider Man. So we raised a fund a couple of years ago to invest most mostly in our lane, which is wealth tech. And it's, it's a messy industry. It looks really sexy from the outside. Like oh, you give money and then you know the, then you get a lot of money later on. And like it's a messy dirty industry. Not, not dirty but there's a lot of work that you have to do. Like these are, these are in some cases like baby companies. And it's hard. Business is hard and then investing is hard because you've got all sorts of like cap table stuff that Most people don't know about. And there's dilution and there's like preferred share and all this sort of stuff. How involved they actually want you to.
- [29:41]
Michael Batnik
Help them with a business?
- [29:43]
Elliot Infischelli
Yeah, yeah, there's, there's a lot more to it than just meeting an influencer and writing a check and then, you know, hope it works out. So what do you all guys do in terms of working with the companies, talking to the lawyers, knowing the players, the influencers, the, the competition, like all that sort of stuff that is like very not sexy and actually not fun at all.
- [30:03]
Ben Carlson
Yeah. So from a traditional, kind of probably split into like, from a traditional venture fund, we obviously want to support the full portfolio in the kind of quote unquote traditional ways. Right. When, when a company is raising their round, you know, we want to be there for them, either invest directly or find other investors to help them out. Obviously from an operational standpoint, you know, look at their kind of quarterly updates, see if there's ways in which we can help, etc. Etc. I would say from an influence standpoint, I think we're really a partnership based kind of venture capital fund effectively. Right. And that means obviously kind of influential people a little bit what we discussed kind of earlier. But two, you know, a lot of brands are also growing, especially in the consumer and consumer tech space. You know, there's, there's a lot of partnerships, A lot of brands use partnerships to grow, right. Whether it's with sports teams, sports leagues, you know, influential people, et cetera. And that's really a lot of our, our value for them is like if you're thinking of doing something with, with the NFL or the NBA or in the nil space with athletes or with leagues, et cetera, et cetera. We think we have fantastic know how connections, ways to kind of like cut to the chase, you know, are you the right brand to do this? Can we help you, introduce you to the right person, et cetera, et cetera. So I would say that those are the two primary ways, like kind of traditional, you know, venture capital. We're going to help you from an operational standpoint. Again, our goal and hope is to have a pretty wide portfolio. So, so we're not going to be super hands on, on that we do not lead rounds. So we're not going to be the guys that are, you know, kind of day to day holding your hand and we don't set that expectation From a kind of influence leagues, partnerships, athletes, et cetera, et cetera. That's where we can really play a role. And kind of get our hands dirty.
- [31:47]
Elliot Infischelli
So how do you think about portfolio structure and position size where you don't know what the size of the fund is going to be like? That's got to be. That's gotta be a challenge.
- [31:57]
Ben Carlson
Yeah, that's a thing. It's a challenge and it's exciting. That's certainly the case. Right. Right now we've kind of average check size is kind of 250 to 500k kind of. Historically in the 38 companies that we've made investments in, we don't know what that will look like next year. We think we have two, three kind of major partnerships that are in place that I think will change that pretty dramatically and AUM will change pretty dramatically. I think there's some flexibility there. We are fans of large portfolio theory where you do have to have a minimum number of investments to really give you the chances to have 1, 2, 3, 4, 5 unicorns that have an outsize effect on the portfolio and the value of the portfolio. Most venture traditional VCs don't have the ability to do that because they don't have a robust back office enough to handle 100 investments or 200 investments, for better or worse. We do. The SEC kind of requires us to have a certain robustness of back office and because of that we can, we can scale the number of investments. So we're also.
- [32:58]
Elliot Infischelli
One of the benefits. Sorry to cut you up, but one of the benefits, the other side of this is that because you have more money coming in the. It's like, it's unusual where traditionally when you've got, when you've got a certain pile of money, you really have to think about position sizing and how much dry power do you want to keep for deploying into, into later rounds and scale up and ride your winners. You have that benefit of not, it's not permanent capital by any means, but you have more money coming in and so you are able to lean into your winners. Whereas with a closed fund like the traditional style, you might have to do like a side pocket or like do a separate round if you run out of money. So that's, that's kind of the flip side which I'm sure you've thought a.
- [33:34]
Ben Carlson
Lot about 100% and obviously with a growing portfolio you have potential for follow on rounds. And you know that's, that's. There's a synchronicity in information and it's a positive for you know, venture funds. And that's potentially where you, where you can win really big with the winners. So I think you can kind of also manage that a little bit. Right. If there's a lot more capital and we say like great, we're you know, 2025, the fund is going to go from, you know, what it is now to 5x and hopefully, you know, hopefully that happens. Then we can also lean more into follow on rounds versus just doing, you know, new investments or do a little bit of both.
- [34:07]
Michael Batnik
One of the more frustrating things about the investment business is that you could be the smartest person in the room and there's a lot of like very quant math based people who are ridiculously smart people but they have no social skills or they, they have no ability to tell their own story and it's hard for them to attract capital because they're not good at marketing themselves. You coming from the entertainment industry know that like the best story wins, right? So I'm curious how that experience in the entertainment business has impacted you in the investment business. Because it's not always about just putting out the best product and saying here it is, the money's gonna come in. You have to actually make a sale and market and tell that story. So how has that helped you in this business?
- [34:46]
Ben Carlson
Yeah, that, that's a, that's a phenomenal question and I totally agree with that by the way. I think it's, I think that the VC world is definitely results driven but it's definitely network driven. I think the way that we fundraise at Cashmere is very different. Right. We are not going to family offices and high net worths on a one on one basis, hopping on a plane, trying to get that 100k, 1 million check, $5 million check. I think we are really leaning into the retail investor. We have done a lot of brand work in 2024 that will be alive in 2025 in how we communicate that value proposal kind of in a, from, from a technological base on our platforms, on our social etc. Etc. And I think we, we will have a number of Megaphone, you know, partners with megaphone that will be able to help us do that. So I think what I 100% agree with, with your question and I would say we might have to wait a couple more weeks or months to really see the full effect of that because we're kind of putting, putting that into place now. We really wanted to build the tech stack, improve the fund and raise the minimum viable fund and kind of do all those steps prior and that's kind of our, our priority. And what, what, what I think you'll see in 2025, which is super exciting for us.
- [35:58]
Elliot Infischelli
So for people that are listening, they're like, oh, exciting. I get to invest in Ventra. I've never been able to access that asset class before. I want to make sure that they understand exactly what's going on here. So talk about the liquidity profile of the fund, because this is. These are. These are businesses that are not publicly traded. They're not trading on a stock exchange. They're. They're building, hopefully, for a potential exit down the road, whether it's through M and A or, heaven forbid, an ipo. The. The. The daddy of all exits. So what can investors expect if they invest in terms of liquidity and return expectations, of course. You know, ranges, guidelines, just risk. How should they think about all of this stuff?
- [36:35]
Ben Carlson
Yeah, that's a broad question. So let's unpack it. So we have a Fund. We have 38 portfolio companies today. Someone can come to TheCashmirFund.com, invest in our fund, right. $500 minimum, and be part of the fund. And they can really track the value of their fund through the nav that's listed on nasdaq. CSHMX is our ticker symbol. That's the basics of it. The way that the fund operates from a liquidity standpoint, being an evergreen fund, is twice yearly, in February and August, we have redemption windows. That's 5% of the total fund. So on the last redemption window, I think we were oversubscribed, which, again, is totally the norm. I think by 60%, that means if you invested $1,000 and you wanted to exit that position in the next redemption window, you would roughly get 60% of your 60, 70% of the fund back if you wanted to liquidate the whole portfolio. So roughly, you kind of look at two redemption windows based on, like, you know, historical basis. And if you want quarterly, and it's biannually, so it's February and. And August or September. So that's. That's how it works today. What, what we also have is we have distributions at the end of the year. So if we. If there's a. There's a. Any. If the value of the fund goes up in. In. In any way, there's a potential distribution window where people say, like, well, I don't want to roll over my capital. I just want to take a distribution. And that distribution happens, you know, based on nav kind of at the end of the year. And I think. Think technically, I think happens in January, but it's basically based on the results of the, of the fund kind of that year. So that's, that's, those are really the three kind of moments in the year that people can redeem their fund. And our hope is really to be able to give consumers the ability to exit their position like 100% or as close as possible at 100% in two redemption windows. So that's the hope and that's historically kind of, we've been pretty close. We've been over 90% which is great, right? So it's like whether it's family emergency or thing you need the cash or you need to invest something in your house or you just want to exit the business. That's, that's kind of how it works and kind of as simple as possible.
- [38:38]
Michael Batnik
But what do you, what do you see as the time horizon? Like what should it be for someone realistically in a fund like this?
- [38:45]
Ben Carlson
We want to build long term value, right? We are not, this is not a closed step fund. We don't want to tell consumers, hey, invest with us for five years and we're going to give you the kind of, this return you can kind of see. And we also have on our website like historical returns of venture capital. They're fantastic, right? Like they, they can, they typically kind of outperform most major indexes and that's where we want to be. Fortunately that's you know, in a, in a, in a. Since inception of the fund, you know, I think we track through the, the prequen VC index which has been down like 20ish percent. We're up I think 12% kind of since then. So we're, we're definitely performing, which is great and we want to keep performing, right. As far as consumers, this is the beauty of having, you know, kind of a, an illiquid asset with liquidity. You can invest with us as much as you want. Want, right? Like I think what, what, what's a great value prop? So ideally we want people to be with us for 5, 10 years, right? Like that's, that's the ideal case scenario. The beauty of venture is it's also asynchronous to the holdings that most people have in the retail investor kind of landscape. Like most people have public investments that kind of basically just go with the market, right? If the market goes up, their investment goes up. If their market goes down, their investments go down. And if there's a little bit of a downturn, basically they're looking at their portfolio and they're saying oh shit, this is not good. Good, right? Venture operates at a different cycle. So while they're still like kind of great potential returns, they, they can create a little bit of a hedge, right, based on kind of where their portfolio is, which most likely is over indexing on, on, on public kind of stocks and bonds.
- [40:15]
Elliot Infischelli
Last question for me. Ben mentioned like best story wins. And this is, you know, communication is a big part of our business. How do investors get a sense of some of the underlying companies? Do you do do annual reports, quarterly reports? How are you communicating the ups and downs of the companies and you're investing into the investor?
- [40:32]
Ben Carlson
Oh yeah, we do better. We do monthly reports. We do monthly, quarterly and yearly. The monthly is more of a kind of a newsletter that we send our monthly, but then we do quarterly and yearly. We are also being an SEC, a 1940s act fund. We are very transparent. So if you look on our website at the bottom, the boring stuff, the disclosures and everything, there's all the fund documents that show kind of all the investments, the nav, the kind of underlying assets, the value of the assets when we invested. There is total transparency in what we're doing, which we think is a huge plus.
- [41:05]
Michael Batnik
Perfect. Where do we send people to learn.
- [41:06]
Ben Carlson
More thecashmirfund.com and socials? Go follow us on LinkedIn and Instagram. And we want to educate people on the value of vc, the historical value of VC and how we're approaching it. And we'd love to check out kind of what we're doing.
- [41:22]
Michael Batnik
Perfect. E, thanks for your time.
- [41:23]
Ben Carlson
Awesome, awesome. It's great to chat. Thank you.
- [41:27]
Michael Batnik
Thank you to E for that talk. We appreciate it. Check out thecashmerefund.com to learn more. Email us animalspearcecompoundnews. Com.