As I've been covering social entrepreneurship and impact investing for the past several years here, I've watched and come to know Village Capital as one of the real leaders in social entrepreneurship. Their peer-selected investment model is unique among the accelerators and incubators I've covered. Last week, Village Capital announced the formation of VilCap Communities, an effort to radically expand the peer-selected model.
[Jump to page 2 to watch the live interview.]
Ross Baird, Executive Director, is on a mission. Last week, he published a piece that was highly critical of the Silicon Valley model for venture finance. Afterward, he told me, "The way we fund new ideas today is broken--we send billions of dollars to a few people in a few well-off cities, who fund people they know and who are in their networks. As a result, 78% of venture capital is distributed to just three states – California, Massachusetts and New York – and only 5% goes to women founders, and less than 3% to people of color. And the people solving problems in society don't have lived experience with most of the problems they are trying to solve."
Village Capital's innovation is the principle of peer selection. When they bring a cohort of entrepreneurs into their programs, those entrepreneurs ultimately decide who gets the money. The Village Capital team serves only to facilitate training and collaboration. "Village Capital's peer selected investment model changes the power dynamic between people with ideas and people with capital. It's no longer well-resourced people sitting under fluorescent lights who don't understand the problems they are trying to solve deciding who gets a shot; instead, entrepreneurs everywhere can get opportunity, if they can convince their peers," Baird says.
Having been invited to watch the process first hand, it is interesting to see entrepreneurs compete and collaborate in an environment where their peers will ultimately decide their investment fate. "Peer selected investment upends the power dynamics of traditional early-stage venture capital, by placing investment decisions in the hands of entrepreneurs (Village Capital provides the first funding in two-thirds of investments). The process also democratizes venture capital by making capital more accessible to anyone solving major global problems, no matter their race, ethnicity, zip code or background," he adds.
Baird hopes to expand the use of peer selection beyond the accelerator-type cohorts they've been hosting. "The purpose of VilCap Communities is to reinvent the way we invest capital in our society by spreading the vision of democratized entrepreneurship, enabling peer selection everywhere. This past weekend, we gathered over 350 people in Salt Lake City – including entrepreneur support organizations and investors representing 16 communities across the United States. The 16 pioneer communities have committed over $1 million collectively in local companies through peer-selection. The weekend was a chance for these communities to interact, network with investors and stakeholders from around the country, including Steve Case, and learn about peer-selection."
Baird is working to empower communities around the country to invest for impact using the VilCap model. "The goal of VilCap Communities is to unlock capital for communities outside the major venture capital centers. Entrepreneurs in these communities are solving real-world problems – like health, education, water sustainability and advances in agriculture. For example, Baltimore is well-positioned to support entrepreneurs solving challenges in Health, thanks to the presence of Johns Hopkins University backing startups through its venture fund and a broader ecosystem that can help entrepreneurs scale."
Village Capital is focused on supporting mission-driven entrepreneurs who have the potential to scale large businesses. "All our companies believe that their purpose is a competitive advantage. For example, WiseBanyan, which brings investing ability to the majority of the world that has no investment income, believes that their focus on financial inclusion gives them a competitive advantage over the big banks, and Kickboard, an education technology company that helps measure data to improve student performance, believes that superior impact assessment increases revenue. Our partners believe in our purpose, increasing the likelihood that they will fund our operations and become great investors in our companies."
Village Capital is a social venture itself, with a variety of revenue models helping it to be self-sustaining. "Village Capital has two core activities: programs and our investment fund. For our programs, partners who believe that entrepreneurs can create impact provide sponsorships and contributions to back our activities. Program partners such as PayPal, our global fintech partner, believe that they can gain unparalleled insights into new innovation from entrepreneurs, and exceptional engagement opportunities for their employees. For our fund, Village Capital charges investors management fees on assets under management, which makes the administrative team operating the fund self-sustainable," Baird concludes.
On Thursday, March 24, 2016 at 2:00 Eastern, Baird will join me for a live discussion about their effort to put entrepreneurs in the venture fund's seat. Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.
You can download an audio podcast here or subscribe via iTunes.
More about Village Capital:
Village Capital sources, trains and invests in seed-stage entrepreneurs with business solutions to major global problems. Village Capital recruits entrepreneurs solving specific problems in agriculture, energy, education, financial inclusion, and health, and then puts the power of investment in the hands of the entrepreneurs, who award the prize investments to the two ventures ranked highest by their peers at the end of every program. The organization supports early-stage ventures through a 501c3 nonprofit operating training programs for founders, investors, and communities, as well as through an affiliated, for-profit investment fund providing early-stage capital to top-ranked ventures of each program.
Baird's bio:
Twitter: @rossbaird
Ross Baird has been at the forefront of the changing world of entrepreneurship, as a member of the founding team of ten enterprises since he started college. Ross developed Village Capital, the firm he runs, in 2009, and leads the development of an organization that has supported over 600 enterprises on six continents, as well as the world's first peer-selected venture fund. The core innovation of Village Capital, peer-selected investment, won the MPrize from HBR and McKinsey for a top top management innovation of the year.
Ross has an MPhil from the University of Oxford, where he was a Marshall Scholar, and a BA from the University of Virginia, where he was a Truman Scholar and a Jefferson Scholar.
