Twas a few weeks before Christmas in 2010, when Evan Mendelsohn and Nick Morton, two old college friends in San Diego, spotted their opportunity: obscene sweaters. "Ugly-sweater parties," at which guests sport loud, holiday-themed outfits and drink merrily, had become a December tradition in their social set of twentysomething professionals. "It was like Halloween but for Christmas," says Mendelsohn. But it was a strictly vintage affair: "People would go to thrift stores or raid Grandma's closet. There was no new inventory."

Mendelsohn, then a lawyer, and Morton, a dentist, decided to start a side business, Tipsy Elves. They built a website and designed their own gaudy knitwear featuring impish takes on traditional holiday imagery (reindeer humping, snowmen with carrots in risqué places, etc.). Sales soared. By the end of 2011, they'd shipped 6,000 units.

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But as business boomed (the company is No. 258 on the Inc. 500, with $6.5 million in 2014 revenue), the pair recognized a sad Yuletide irony: The partygoers who bought their novelty sweaters for $65 a pop might wear them once or twice. Meanwhile, poor children across America wake up on Christmas without warm clothing. "We felt a responsibility," says Mendelsohn. "We didn't want to forget about the people who couldn't enjoy Christmas."

Ahead of the company's second holiday season, the pair decided to take a percentage of the proceeds of every sweater sale made through their website and use it to manufacture hoodies to donate to children in need.

Since then, Tipsy Elves has donated 5,000 children's hoodies and thousands of hats to groups like Children of Shelters in San Francisco, Save the Children, and Stand Up to Cancer, with 3,000 hoodies on order for the 2015 holiday season. The founders also plan to set up a nonprofit to donate new clothes and services to poor children year round. "It would be fun to ... do special things for families and individuals with compelling stories, more than just donating sweaters," Mendelsohn says.