Talk Your Book: Direct to Consumer Venture Capital

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0:39management may maintain positions in the securities discussed in this podcast.

0:47Welcome 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 started, but 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 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.

1:32And I think that that sort of thing is going to become more and more commonplace as we go along. 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 education in the space.

2:08Yes. 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. Right. This is something probably a lot of advisors don't even have experience with. 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.

2:41So their whole thing is networking and finding people of influence, whether it's the founders or the investors or the partners to distribute this. They are very much leaning into the fact that people trust people and brands as opposed to like the incumbents. And being a talent agent is a lot like being a VC in terms of the networking piece. And just, we talked to Elia Infocelli, who is a partner and CEO at the Cashmere Fund. They have Josh Allen of the Buffalo Bills as a partner and investor in the fund. Oh, you know what? On this conversation, I almost forgot about this. Afterwards, I was thinking, wait, did I say the name wrong?

3:17I said, I think I called Norman Osborn from Spider-Man. I think I called him Norman Oswald on this episode. Maybe that's why it went right over my head. I think I did. And if I didn't, disregard. We'll find out. It would have been really awkward if you messed up a movie line when we talked to someone from the entertainment business. I think I did. I think I did. That's okay. We'll let it slide. So anyway, they have a venture capital fund that is available to people in a, what do you call it? A 40-act fund? Is that correct or not? Yes. Correct terminology? So minimums are what? Like 500 bucks? Yes.

3:49It'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 Elia Infocelli of the Cashmere Fund.

4:11So, E, you have, we've been told you have an influential quarterback on your roster in Josh Allen. 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. 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.

4:47And 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, we really leaned on kind of our unique value prop of like the influence kind of driven model of deploying, you know, 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, you know, we'd reached out as most people, you know, first time VC guys and girls, you know, kind of do like friends and family.

5:20That's how you start the 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 write a check. So he became the first check in our venture fund, which is kind of former capital, which is the first fund that we raised kind of pre-Kashmere. 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 he kind of said the same thing, love what you guys are doing.

5:54And I think he loves VC. And he decided to join us again, which was awesome. So before we get into the fund and the opportunities and the investors that you're allowing into it, because it is a unique structure, talk about your background. You're not a finance guy. You're not a venture guy. You got your career started in Hollywood. So how did you make the leap from advising talent and doing that sort of stuff to here? Yeah, that's a great question. There was an interim step for me. I was a traditional agent. I would say I was an agent at a traditional company called Endeavor. And I was an agent for the first 10 years of my career there.

6:34And 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.

7:08Right. 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. You could say you could say his last name. His name is Ari Emanuel. And and what we did is we eventually became the Brand Ventures Group. But we started incubating like, what does this look like? How do we how can we help talent kind of like build their own entities? And the first guy that we helped 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.

7:38And those were deals that paid him multiple million a year to do a social post or show up or something. And basically, we went and we just said, 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 the catalyst, so we can't take credit for it. And he was awesome. He was like, yeah, let's do it. And 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 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 has.

8:14And then eventually opened up kind of the world. So for me, it was kind of like an interim step. I went into incubating, created 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. 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 tried to do these things. And now - Hold, hold, time out.

8:46Did you act like you just made that up? I have the tweets to back this up. Don't even, don't go there. This is a long time ago. You also invented the question mark. So, 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 curious how that's evolved over the years. Yeah, I think totally. I think that Jay-Z, I'm a businessman, I think resonates to a lot of people.

9:25I think it comes down a lot to 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, I can use, if I have social and I can connect with people directly, I can go build something that's incredibly valuable. So I think that was, that was obviously the start of, of, 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?

9:54Like 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 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 can kind of dictate what is successful or not. If you're good and you have a direct connection with consumers and a good idea and really the willingness to do it, like sky's the limit. Yeah, that's certainly true. So the however that I would be curious to hear your take on it and how you sift through this is that influence is maybe a prerequisite, but it's not enough on its own.

10:29Like a hundred percent, right? It's just table stakes. Like, okay, fine. You have influence, but let's, how are you, is it, is it 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 while somebody time. So how do you think about wrapping a product or service and idea around the idea of influence? 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.

10:58But 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, right? Like, does someone really care about a product? You look at, you know. Like HocktoaCoin. Exactly. Exactly. Who could have seen that coming? I have no words. You know, you look at some of, you know, we're invested in, for example, like De Sois, which is Katy Perry's non-alcoholic 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.

11:33It'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. 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 spread themselves too thin. They were just cash grabs. It wasn't their passion project. So I think probably from your point of view, you know what that looks like.

12:07You know who's been to the well too many times and you know who's doing something that they actually care about. A hundred percent. We think, you know, we think we have better data 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?

12:41Are 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 it was also to your previous question about a quarterback, is, you know, 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?

13:10Sure, they have endorsements and they can go and have big speaking engagements, et cetera, et cetera. But effectively, their day job is gone and they're highly influential. What do they do next? So that's also an area where we're spending a lot of time in and on and figuring out how do you really create longevity with those athletes. 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? Yeah, Forma Capital is a traditional venture fund. So we're a 220 model and traditional GP structure.

13:49What 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 the cashmere 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. Just having the ability to take that investor base and really create a community around them and a community around the brands that we invest in.

14:25How can you activate and how can you have them organically be engaged and evangelists of these brands? That's what's really got us excited about the model of creating 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 beyond that. Like that's inspiring to us. Like how can you create a community around people that are backing these companies? So we'll spend a lot of time talking about that idea and what you're doing.

14:58But 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 somehow you got connected or they've got it back or talk more about these type of companies. 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, four are 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.

15:32We're not going to look back and say like, wow, we have 100 or 50 % of the portfolio 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 kind of a good example. We think that's - Well, how do you have better data? You've said that twice now. I'm curious. What do you mean about that? Well, first of all, we have access to their networks, right? So a lot of times we know the people, the talent and the athletes directly. And that means a lot. You know a person, you kind of know, is their heart in the right place to build this?

16:04Are they doing it just for the money? Are they doing it for legacy? Are they doing it for their kid? Are they 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? They have business managers and agents and managers and assistants. And everyone kind of typically has a say, which, again, not a bad thing. Uh, 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 play golf, you know, 36 holes a day and really just like at some point to 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?

16:41We're not invested in Ryan, but like that guy. Don't get Ben started. Ben is a huge Ryan Reynolds stand. Michael's had a paper shot on Ryan Reynolds for like three years and he's been wrong. I've been, I've been just raking it in. I'm equal weight Ryan Reynolds. Not short. Actually, maybe slightly underweight, if I'm being honest. 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 whole thing evolved. 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.

17:22And there was a lot of like massive hurdles for the everyday retail investor to be in this 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, you know, 10, 20 years? It's an asset class that really 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.

17:58So 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 is 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 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. And we have redemption windows without any penalty. So you can also have it as a two, three, four, five-year investment, et cetera, et cetera.

18:35It was a very, very heavy lift from a tech stack standpoint. It just didn't exist. We kind of had to create the how do you how do you onboard, you know, thousands and thousands of investors in a very time and cost efficient way. So we had to create kind of custom integrations of like, how do you to be able to kind of do that? And, you know, that was ultimately kind of the goal is how do you how do you create this? You know, how do you give access to this asset class? How did you get around the rules and regulations for this that you don't have to be accredited to invest in the fund? So technically, we abide by the kind of where the 1940s and the 1933 Act Fund.

19:11and by doing those two things, you can raise capital for non-accredited investors. There's about 100, just under, I think, 100 interval funds in the US. Most of them, 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 a heavy lift. They're expensive to run. They're expensive to set up. And venture typically is, you start with a smaller fund and And 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.

19:45But technically, we're an SEC registered entity. Again, we have a pretty high bar 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 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 real value add to the consumers. 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.

20:24Why, like, is there any sort of adverse selection or anything? Like, when you get this sort of question, how do you answer it? Let me clarify the question. It wasn't a great question. It was a bit rambling. Go ahead. So how did you interpret my question, my bad question? Can you become a successful venture fund by starting with$500 checks? Sure. The vision was always to start as a DTC brand. As with where DTC fund, but effectively we're a DTC brand. I think most brands today are not DTC, right? They're omni-channel, but you start with a kind of loyal customer base on a DTC side. And that was basically what the cashmere fund is.

21:00So 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 and we did it through 5000 investors. The future of the fund is to become an omni channel. 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?

21:36Like 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 do we get into Walmart, et cetera, et cetera. And that's really the stage where we're at. We're transitioning from a DTC to an omni-channel brand, and we're having those partners onboarded really in 24 that are launching on 25. 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 you a question that is an easy softball for you.

22:06Are the$500 checks going to get the same great investments that the$5 million checks are? 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. 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.