One of the most gatekept alternative assets is venture capital. Sweater aims to democratize access to the lucrative world of startup investing. They’ve developed a fund that meets SEC requirements for VC funds while giving anyone with $500 the ability to invest.
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For as long as it’s existed venture funding has been reserved for the rich. First and foremost, because most people just dont have the capital to bankroll some random person's new business. It’s also because startup investing is largely only available to accredited investors. But Sweater thinks this lucrative asset class has been gatekept by the rich for far too long. Sweater set out to create and raise a fund that would both meet regulations and allow anyone to participate in venture capital. By pooling the funds of many lower net worth individuals they have created a viable way for anyone to invest in startups. To participate in the future of venture capital, you can purchase shares, speak with an investment specialist, and learn about how your money is being used all throughout their app.
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How you make money
Sweater ventures makes you money when a startup in their portfolio “exits”, i.e. when a startup is acquired or goes public. Some startups take decades to exit and some can be also fail along the way, where no return is ever made on the investment. That means these are high risk, high reward investments to hold onto for the long haul.
How Sweater makes money
In contrast to traditional venture capital Sweater makes money through an annual 2.5% management fee and has no carry fees. All fees are incurred up front and there is no money removed from earnings at the end of the life of the fund. In addition to the management fee shareholders of the fund also pay fees that include but aren’t limited too audits, marketing, valuation, legal, and custody. Sweater estimated this total amount could hit up to 7.5%. However, the government caps the total amount of fees payable at 5.98%. These fees are paid based on each shareholders net assets attributable to shares. Sweater also gives shareholders a redemption window where they can sell their shares back to the fund. This incurs a 2% repurchase fee.
Is it safe?
Sweater is a verified and legitimate investment fund that is run by a team with experience and expertise. The team has raised $12M of capital and has backing from some big names in angel investment. When the waitlist opened in 2021 there were 60,000 people interested in investing with Sweater. They also offers a bi-yearly redemption windows where they will repurchase up to 5% of the shares in the fund. This gives users the option to liquidate in emergency situations. Due to the large quantity of investors Sweater is the only fund in venture capital that can give shareholders this option. The project launched June 15 and there’s a ton of excitement in the investment community about what this could do for the venture capital space.
How You’re Taxed
Profits earned from investing in startups are taxed like stocks. Investors are subject to short-term capital gains when selling investments held for less than a year, which are taxed at ordinary income tax rates. Long-term capital gains are applicable when investments are held for a year or more with tax rates ranging from 0% to 20%, depending on your total taxable income.
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