The Investors Everybody Ignored

companies have been run by and for men. I'm Jacob Goldstein and this is What's Your Problem, the show where entrepreneur and engineers talk about how they're going to change the world once they solve a few problems. My guest today is Sally Crotchet, founder and CEO of laves. It's an investment firm aimed at women, and it has around one point five billion dollars in assets under management. Sally's problem is this, how do you convince women to become investors?

Before Sally founded Lavest, she spent decades working in finance, and as she worked her way up to top jobs at City Bank and Merrill Lynch, one thing kept being true. She was often the only woman in the room. She told me that started way back at her first job in finance at Solomon Brothers back in the late eighties. It was stay up all night, run for the airplane, work on deals, sharp elbows, lots of gender discrimination, all the stuff you read. Just take it, you know, if

that's a five, take it to a ten. Well, what was it like being a woman there? It was horrible. It was horrible. It was horrible everything about it. I remember my literally my very first day, literally my very vers day. I'm sitting there. I grew up in Charleston, South Carolina. I went to UNC. I was wearing the absolute most professional thing you could buy in the city of Charleston, South Carolina. It was a you know, sort of loosely fitting jacket and a loosely fitting sort of

longish skirt. And I remember standing by my desk, Oh, look, here are my pencils, and smelled cigar smoke. And a man went by smoking a cigar. He pauses, he looks at me, he says, what is that effing discount maternity wear? He kept going And I said to someone, who the heck was that, Oh, that's the head of the department. Your boss's boss's boss's boss. From there on it got worse.

And it's interesting because I read now research that sexual harassment you think it comes from powerful men, but apparently it comes from men who want to be powerful. And so for those individuals who were a leveler two ahead of me, you know, in the evening, putting xerots copies of male genitalia on my desk. On one level, I know I shouldn't be surprised, like I read Liar's Poker. I've read research, and yet it's strangely still shocking to me. I know better than to be shocked, and yet I

am shocked. I know, I know, but there was nothing I could do except just keep going. I had signed a lease, a twelve month lease in New York City that I did not have money in the bank, of course, to pay for. My parents did not have money in the bank to pay for. All I could do was keep going to work and just survive through it, and over time be good enough, be indispensable enough that that stuff had to fall away. And then over time, as I became more senior. Of course, don't don't stand for it.

And it seems like, I mean, this is jumping ahead a bit now, but it seems like you eventually really kind of found your your niche, your groove in finance as an analyst. Um, tell tell me about that part of your career. Oh, I loved it. I loved it, and probably part of what it went to things I love to do. I your your listeners gonna be like, she's such a she's such a goober. Um, I love

to get lost in. It's a very good I mean, I you know, I will start looking at at an Excel spreadsheet or Google sheets and I will look up in four hours have passed and how did that happen? That was being a research annelist. I loved it. It probably helped that one. I found that job at Sanford Bernstein, which you know was a group of I used to call it the Island of the misfit toys. It was not sor to wear traditional Wall Street pulled from, and that the sexism sort of fell away because you were

an individual contributor. You weren't working on teams and jostling with folks, and people wanted to make money and if you could help them make money or have insights that others didn't, there was something about it where the sexism sort of fell away, And in fact, I would argue that being a woman probably helped me because if I was competing against fifteen men, you couldn't forget me, and particularly if the research was any good, which humbly it was,

you couldn't forget me. So there's one piece of research in particular that seems to sort of stand out, and that was this report you wrote about American General. Tell me just a little bit about that, like very like, what was that? When was that? Why was it important? For years? So it was actually my first piece of research before I knew how the game was supposed to

be playing, which which was a benefit. And American General was an insurance company and they were finding growth in lending and making loans, and the analyst at the time said, oh, look they've found this avenue to growth. This is exciting, this is an outperform. And I, using the same information other analysts had looked at it and said, you know, the credit quality appears fine when you look at it versus today's loans, but credit quality only emerges over time, right,

bad credit quality? So let me lag the ratios and see how today's credit quality looks versus last year's loans. The answer was terrible. So I wrote this up. I said, you know what, they're growing because they're they're reducing their credit standards and making loans other people won't. This is going to blow up. I published it. I called it woan ally. The company was furious, other analysts were furious, and a couple months later, damn it if it didn't

blow up. And when the bubble burst and we stood alone and our business exploded, I was on the cover of Fortune as the Last honest Analyst, which is still still when I think back on it, is like the most surreal thing that ever happened to me. Uh say, more surreal, how because your face is on the cover of a magazine and you walk through the airport, You're like, there's my face on the cover of a magazine. And by the way, the face on the cover was bigger

than my own actual face. I think, did you hold it up? I would have definitely held it up to see it. But I held it up and tried to track it, and it was even so big that there was a little mole on my chin that I thought i'd have removed. And I started the magazine. I'm like it didn't. They didn't fully get that little mold, did they. So so you're like Nerd famous at this point, you're Wall Street famous, right, you know you ascend. Right. You have a very senior job at was it Smith Barney

within City and you lose that job. And then you have a very senior job at Mary Lynch when it's part of Bank of America after the financial crisis, and you lose that job. Thanks for bringing that up. Really, you know, it's a story has a happy is a happy ending. Um, we know, we know it's going to work out. But tell me tell me about losing that second job. I mean, it seems like that sets you up to found Elves. So yeah, tell me about about losing the merrilleam. So it was it was a shocker,

and it wasn't. Um it wasn't because um, I knew the CEO and I were not big buddies. He never stopped by my office on the way to the leadership team meeting and said, Hey, Sally, can I run something by you? You know I would. I was the last on the leadership team to know. It was a surprise because we had turned the business around, the business was growing, we were gaining share. We were beating plan and I remember, you know, saying to my husband, I mean, he doesn't

we're not getting along, but the results are there. And we were like, well, if the results are there, and I would check in with his you know, entourage, or am I doing okay? Yeah, you're doing fine. You're doing fine. And then you know, one day after, you know, just as I'm feeling like this is great, I was pulled into his office and he said, we're gonna reorg. You're out.

We're going to have this gentleman who happened to be a white man in his I think early sixties, who had worked with the you know, the CEO in the past,

who would never run a wealth management business. But we you know, essentially, we think this guy who's never done this job before can do a better job than you when it's what you do in your career and you've you've actually turned the business around by and just like what and and hes sort of hearing, well, we don't think you're a culture fit, which is you know, code language obviously for we all like you, you know, or you're too loud, or you're too flashy, or you're too something.

But that was sort of a shocker because I always sort of thought, just deliver the results, be respectful, keep your head down, and good things will happen. And it didn't. It did not. And what did you do when you got fired? What? What? What happened next? Yeah? So I went home and drank Okaya Classic for a reason, you know why not? Drank and felt sorry for myself for a day, and then you know, I do remember, I absolutely remember thinking to myself, first of all, recognizing that

success and failure two sides of the same coin. Right, the you're not a culture fit means you're standing out too much. Well, in order to actually get to where I was, Remember, as we just talked about, I had to stand out. If I'd played the game the same way everybody played it, I never would have gotten to those senior levels. I had to see the research differently,

have different strategies. And what's my evidence of that, Well, if you look up at the time, there were like zero women in senior leadership, and so I had to play the game differently. By playing the game differently, I stood out and therefore risk losing my job. And you can't have I wish I had the secret for a while you can be super successful, but without taking risks, you can't do that. So the second day, I definitely knew. At the time, I knew it was one of the

best things that ever happened to me. I knew I was going to look back on that day and be like, thank goodness, why, because honestly, I wasn't happy there. You know, if you're not part of the inner team and your leadership team and you feel out, that's not a good place to be. But I never could have left. I never could have called my dad and said, hey, Dad, I have X tens of thousands people reporting to me. We're turning around command of the financial crisis. I just

don't feel like I'm part of the inner team. I just feel like I should leave. Never would I have done that, But I knew this was a catalyst for me to do something different and bigger and more important. It's just at the time I didn't know what it was. So how do you get from there to founding Elvest Law? It was a law, It was not overnight. How did

I get here? Well, people said to me, when I'm on a little journey, you should start an investing firm for women, And I thought that is no, no, no, no no, women do not need their own thing. And by the way, if I'm going to be honest, I'm a varsity player. I'm not going to do some look at us girls together, right. I mean there is a way in which the idea

could be seen as as patronizing, right for sure. And when we launched, a double digit percent of women told us so we had it, Like that was your first response, that is, why why do girls need a special Like, yeah, we can do that, we don't need. But the issue is we don't. We don't. How did you go from? How did you go from thinking that's that's an insult to women to being, oh, that's actually something women need.

How did you how did you get from you know, I went around a corner and threw a pasture and ended up. And the momentum was actually when I was one morning putting on my mask era and just was sort of, you know, my mind is wandering, and all of a sudden I had I thought, I'm gonna have a big insight and I did, and I did. I don't know it. Sometimes it happens to me where I'll be like I'm about to like, some thing's coming together and the thing that came together was that the retirement

saving shortfall in this country is a woman's problem. It's a woman's issue. Why because eighty percent of women die single, We live sixty eight years longer than the men. In our lives. Half of marriage is end in divorce. We end up sadly alone. I mean, look at any nursing home in this country and you know this to be true. And so therefore, if there's not enough money for retirement,

it's us huh huh. So that in that universe, even if everybody has the same amount of money saved at age whatever, sixty, it's still a bigger problem for women, just because women will live longer than men be more likely to run out of money as a result. And by the way, add to that, if you want to back up, that women earn less for doing the same jobs, we take more career breaks and our salaries peak sooner. So there's actually compounding issues here as well. So I'm

I'm looking at this and I'm saying that is a problem. Huh. And eventually got to women have thirty cents of wealth for every dollar men have. Black women a penny. Okay, so we talk about your your listeners may have heard of the gender pay gap, and it's eighty cents. The wealth gap, which is what we keep and what we have is thirty something since to a man's dollar and going in the wrong direction. You've used the phrase, and forgive me if you're about to get there. You used

the phrase investing gap. What's the investing gap? Well, there are two ways that we have built wealth in this country over time, right. One is real estate, in buying real estate, and the other is investing in the stock market. And when I look at this and said, well, how do we close this gap? Right, A lot of people are working on the pay gap, but this investing gap, where women keep the majority of their money in cash, is costing women hundreds of thousands, some women millions of

dollars over the course their lives. This is the issue. Ah, well, let me turn around. Yep, So you touched on in passing. But you just said women keep the majority of their wealth in cash. Yeah? About that? Like, is this this thing you knew before? Did you discover that this period? So there were things I knew, So I sort of knew women didn't invest as men as much as men do.

What I really knew, having run Merrill and Smith Barney, is that women leave the financial advisor they and their spouse have in the year after their partner's death or in the year after a divorce, at a rate of eighty to ninety. So I knew that men are very happy with their financial advisor, but women leave. What I also knew is the industry is aware of this. The industry's narrative around this, which I accepted, is well, it's because women are risk averse. It's because women aren't as

good with money. It's because men enjoy investing more. It's because women need more financial education. In other words, it's her fault and everything we as an industry do. The products we offer are super. They're super. Women just have this issue. Okay, so let's put together a marketing plan. Let's market at women and tell them they should invest in.

I said that, You know, I didn't quite happen that day with the mask era, but as I sort of process through it will wait a minute, maybe maybe that's what is going on. But maybe in an industry where ninety eight percent of mutual fund dollars are managed by men and ninety nine percent of investment dollars are owned and managed to companies owned by men and eighty six percent of financial advisors, and maybe they built a business

for themselves. What if we center instead on women. What if that's what we build and that was the genesis of ls. Why don't we change the underlying product to take into account the thousands of different needs women have that you know the industry isn't. So that's the big idea, But how does it actually work? What specific problems do you have to solve to build an investing firm for women? That's up in a minute. Now back to the show.

In some ways, lavest is pretty straightforward. You can join for a few dollars a month, they help you invest in low cost ETFs, or if you have more money to manage, you can pay higher fees and get a financial advisor. But of course there is this big twist. Lavest is for women, and part of that is branding and marketing, but part of it is that they actually make different investment recommendations based on gender. I asked Sally

how that part works. If you have a man and a woman with the same income, same net worth, same investing goals, why do you need different investing strategies? She lives longer than he does, she earns less, or her salary trajectory. From the point if you're saying they both are earning the same, her salary trajector will be lower and her salar will peak sooner. All things being equal,

then some things have to be different. One thing could be that we give her a portfolio with more risk in it because she can afford to take that risk because of her longer life. But another change could be that she invests more. Right, she invests, I mean a higher percentage of her exactly right, that's exactly right. So and it depends on what she's comfortable with. Our solutions

are highly customized, so she can do that back and forth. So, yes, there is that core difference in the algorithm based on gender, but there are a thousand other small things in the product that are different. One of the things we learned is men will if they see jargon in an investing flow, they will oftentimes keep going. Women will stop oftentimes and say, WHOA, that seems important. So what we discovered is in the on the onboarding, you ask a man is risk tolerance?

He's not sure. He takes an educated guest and continues. She stops and leaves. Oh, I've got to figure that out. So we spent a couple of years doing deep research, finding those little points of friction, little points of friction along the way to make the experience feel effortless. So you start the company, women are investing with you. You have well at this point you have a billion, more than a billion dollars under management. Then yeah, one point four,

one point five. And then at some point, not that long ago, you have to raise a Series B. Right, you want to raise more money to keep the company. A lot of people say, why, blah, what tell me about why do you hate it's terrible Series B? Just to be clear, it means raising more venture capital funding, right, basically, yea,

why what? Why so bad? Well, you may have heard the research that says that women, despite women, run startups delivering higher returns, and men run startups despite that, women raise just want you know, four or five percent of

venture dollars and Series B later stage call it one percent? Okay, so even less so the gap between what women founded companies and men founded companies, It actually gets bigger once the companies are up and running, yep, which you think it wouldn't because if the returns and the numbers are there. Why not? But it's that's a long couple glasses of wine about gendered expectations and all the all the things

you have called this. I don't know if you made this up, but I saw it in connection you did. Did you make up the phrase series B cliff? I didn't know that I did, but then somebody told me I did, and then I googled it and like, I think I made that up. And so just to be clear, what is the series B cliff? So there is today a fair amount of capital coming in to fund women startup CEOs. Seed stage that's when you have just the PowerPoint presentation. Series A that's when you raise the first

real chunk of money. Then Series B is when you tend to raise more and the company's product market fit has been proven. You know, things aren't perfect, but you've you've got a real business here. You've you're motoring along. You would think Series B women would raise more because the numbers are there, but I hypothesize there are fewer

people on the other side of the table venture. There's a fair amount of capital coming in at seed in series A women funding women, They're they're really much fewer women writing the big checks, writing the big Series B checks. Yeah, and so I still found even at Series B, even with the numbers, and the numbers were good, the payback was within it. You know, every marketing all we spent, the payback was took eight months. Is former CFO you

do that all day long. But what I found was I still got well, but don't their husbands and well, you know, your numbers are good, but they're going to get worse because you're going to scale through your early adopters because your target market. I mean, like, how many women really want to invest? I'm like pretty much. I think all of them should be. And you still you still get the if what if Fidelity gets in? You're like, the market's plenty big, plenty big, right, there are plenty

of multi billion dollar wealth tech companies serving man. Yeah, I don't know. So the Series B is tough. So when you ask why did you make a face when I talked about raising your Series B, that is why. That is why, Because the amount of time and just pain is tremendous. And so what happened in the end, I mean that was not that long ago that you were setting out to raise this money right. That was earlier this year, more or less we it was it was last year and then into early this year, and

the women came to the rescue. It was the damnedest thing I've ever seen. We were out raising money. We got a great strategic but you know, sort of a bank like, oh, we love what you're doing, we love to learn with you. We got an investment, we got it priced, so we had sort of the structure in place. And then I had a woman call me from Ada on the West coast, never met her before, and she said, I heard from Bump Up Up that y'all are raising money. I don't have enough. I'm an early stage investor. I

can't reach her minimums. But let me make a proposal. What if I pull together my network of women and we invest together and what's called a special purpose sp special purpose vehicle? But what if we do that? And I'm like sure? And she said, I think we can raise X million dollars for you, and they did. And then someone in that network said, I've got a network of my colleagues and friends who love what y'all or

what have I pulled together? And then someone of that's what have I pulled together and then along Cam Gangels Gay investors. What have we pulled together? And we brought in hundreds of new investors through these special purpose vehicles and sort of found that in between place between institutional dollars and crowdfunding where you know, you can't really raise enough in order to raise a fifty three million dollars Series B investment and just buck every trend that was

out there gives me chilling. I've got chills. I'm chilling. I'm chilled. Good, I know, I know. Okay, briefly, what's the next hard thing you want to do that you haven't done yet? Get all of us to profitability. We have reached what I think of escape velocity. We've proven the model, we've proven product market fit. We understand what it takes the issue with these wealth tech companies is

they take a while to become profitable. You know, people come and they are with you for five years, ten years, twenty years, thirty years. So it's not like selling a T shirt where you get all the revenue upfront. The revenue emerges over time and so you go now and then they make more money and they pay you more money later. So is there is there sure time when you when you want to be profitable by fully certain

it would be really great. But the challenge with the economics is you have to build out the whole thing before you get revenues. It's not like, oh, I'm gonna do a you know, sort of an early version of information security right or compliance. You don't care if we're not compliant, do you? And so there's a built now, right, I mean, the sort of minimum viable product exists. So yes, so we just need to bring in more folks, yeah,

and get more money from existing folks. In a minute, the lightning round, including what to do when you get fired and a red flag to look out for when you're investing in the stock market. That's the end of the ads. Now we're going back to the show. Let's close with the lightning round. What's one piece of advice you'd give to somebody when they get fired. It is

the best day of your life. You just don't know it yet, and it's your job now to find the opportunities that are out there that sometimes come by you and you don't even see them, and take advantage of them. Success will look different, but it can be even better. Makes me want to get fired? Well, if people don't want you know, but if people don't want you there, you don't want to be there. I just not as That's a really good way to put it. I didn't mean to be clip, but that is a really good

way to put it. I have read in other interviews that you like to cook. I also like to cook. I'm not fancy, but I enjoy it, and I'm always looking for like quick ish weeknight dinners. Do you have any tips or recent favorites. The Marcella Hassanne tomato pasta sauce with the butter is a winner every time. It's every time you use it with canned tomatoes is even better than with fresh tomatoes. That's the kind of tip I can use. I appreciate that. So Okay, So the

market is down a lot this year. I know I'm not supposed to look. I know I'm not supposed to pay attention. I know I'm not supposed to sell. But how do I not do that? You got a tip for how to do not doe it? Just don't freak out, go for a walk, do not freak out. Presumably the money you're investing is not money you need tomorrow. Otherwise you need to be with Ali best because we would have put you in a less risky portfolio if you need it right away. So do not look, just don't

sit on your hands. Going back to your life as an analyst, Yes, as an analyst, what was one warning sign you never wanted to see in a company? Ah, when they would consistently beat consensus estimates by a penny every quarter. When you saw consistency of earnings out of a financial services company. We talked about American General AIG. They later blew up Wells Fargo, CONCCO City Group to

some extent. What it said is they were managing earnings because they're just it's just not that stable, and every one of them blew up, it's fishy. That's a fishy sign that that's not what they say. For sure um bitcoin or ethereum. Please ethereum because it uses less less energy, better for the environment. One piece of advice for women

going into finance or other still male dominated fields. If you can the company you go into, look up and if you don't see anybody in the c suite who reflects you, just understand it's going to be much harder if you are the first. If you do see people in the c suite who reflect you. It's still going to be difficult, but your chances are much greater. What's one piece of advice you'd give to someone trying to solve a hard problem. Get into the zone, see what's

really work, to approach it differently than others. It hadn't been solved in the traditional way because there's a reason for that, and so you've got to come around the back or of the side in order to get there. Sally Crocheck is founder and CEO of Elves. Today's show was edited by Robert Smith, produced by Edith Russolo, and engineered by Amanda K. Wall. I'm Jacob Goldstein, and we'll be back next week with another episode of What's Your Pap? Happy Thanksgiving