This article appeared March 16, 2012 on the NextBillion Blog. To view the full post, please click here.
By Ross Baird
What if entrepreneurs could invest in each other? When we launched Village Capital three years ago, that’s the question we asked. And after ten pilots worldwide in four countries (India, Brazil, UK, US) the answer is clear: peer-selected investment allows more companies to get funding and support faster, more effectively, and at lower-cost. And thanks to a partnership with the Aspen Network of Development Entrepreneurs and Potencia Ventures, this spring, Village Capital is coming to China (with partner ECSEL) and Nairobi (with partner GrowthAfrica).
A couple of years back, Village Capital was developed as an initiative of First Light Ventures (a seed fund associated with impact investor Gray Ghost Ventures) to solve a major problem. Despite the massive resources dedicated to impact investing (over $5 billion under the management of 300 self-described “impact investors), very few game-changing ideas are getting support. Entrepreneurs claim that no funding is available, and the fundraising process is confusing and opaque; impact investors claim that there’s a massive shortage of quality deals. (Every entrepreneur and investor in the sector is nodding their head right now in agreement.)
We had to do something different at some point in the value chain. Inspired by the “village bank” methodology in microfinance, we developed Village Capital to use peer support to build and invest in companies. The Village Capital methodology is simple: we democratize entrepreneurship. We run programs of roughly three months for early-stage, impact-oriented entrepreneurs focused on key interventions that build winning companies. At the end, entrepreneurs assess one another, and the top-ranked receive pre-committed investment from us and local partners, with a twist: the investment is decided by the peers themselves.
We’ve found this to be effective for three reasons:
- Entrepreneurs are often one another’s biggest supporters and toughest critics. Entrepreneurship is lonely, and forming a group of entrepreneur peers makes business work better. In fact, 95% of entrepreneurs who haven’t received funding from our program still recommend it to a peer.
- The process is radically transparent. Entrepreneurs go through a thorough peer review at multiple points during the program; one entrepreneur, after getting ranked last in the first “trial rank” three weeks in, said that “this was the first time I’ve ever heard anything bad about my company. But it will make me better.”
- Pre-committing the investment matters. Despite the promise of impact investment, entrepreneurs often find angel investors “all talk, no action.” The promise of actually receiving investment draws quality companies.
So our ten pilots supported over 150 entrepreneurs, investing $1.6 million in peer-selected companies through partner investors. And at the beginning of 2012, Village Capital incorporated as an independent organization. When we were looking to expand, and didn’t know where to go, we turned to the Aspen Network of Development Entrepreneurs, and ran a competition: we’d pre-commit $50K in investment that we already raised to peer-selected companies, pending a local match. We did this (a) to help expand smart, and (b) to ensure there was local buy-in for the programs we wanted to run.And we couldn’t be more excited about our two partners: GrowthAfrica (Nairobi) and ECSEL (China). The announcement will be formally made on March 27 at the ANDE 3rd Anniversary Celebration, but we wanted NextBillion readers to be among the first to know!
For our first African expansion, Village Capital is excited to partner with GrowthAfrica, one of the two winners in our Village Capital/ANDE/Potencia global search. Founded by Johnni Kjeelsgard, an experienced angel investor in Nairobi, and Patricia Jumi, an Acumen Fund East Africa Fellow, GrowthAfrica currently serves as an incubator for start-up companies. The VilCap cohort will meet in the GrowthHub in Nairobi, and GrowthVentures, a new impact investment fund in Nairobi, has committed 50 percent of the funding for the peer-selected ventures.
The program will recruit 12-16 companies from across Kenya for a cohort spanning June-October. Village Capital: Nairobi is particularly interested in companies in the mobile/ICT and clean energy sectors. The application will open later this spring on vilcap.com; stay tuned.
Also, in April 2012, we’ll launch our first China program in partnership with ECSEL, China’s premier organization focused on entrepreneurship and impact. ECSEL is part of a family of enterprises that are trailblazing social enterprise and impact investing in China.
Launched by the Schoenfeld Foundation, ECSEL is a fully-subsidized incubation program for entrepreneurs looking to build or expand a social business in greater China. Through the course of their year-long, part-time program, participants receive two international training trip (one in the US, one in mainland China), customized mentorship, and investment opportunities. ECSEL has reached over 1,000 active entrepreneurs and recruited a cohort of 30 enterprises from across China for its 2012 fellowship.
This year, Village Capital will be a core component of the ECSEL Fellowship program, with each of the 30 fellows competing for two investments of $50,000 each to be awarded this fall.
We’re kicking off the partnership on Friday, April 20 with a day-long mock “Village Capital” at the HUB Bay Area (SoMa). We’ve love for you to join us from 2:30-5:00 PM (RSVP HERE) when the finalists for this one-day event will be presenting their enterprises. There are some amazing things happening in social business in China, and ECSEL has brought the best of the best to your doorstep.
We’re incredibly excited about the world of impact investing this spring, and proud to be working with such incredible partners as we do our part.