Traditional investment process is filled with blind spots that lead to overlooked and undervalued companies, believes Deepak Menon, Regional Manager (South Asia) at global VC fund Village Capital. The blind spots in India are as prevalent as anywhere in the world, despite it being a vibrant startup ecosystem with a lot of entrepreneur support organisations and VC activity, he said in an interaction with e27.
“Traditional VCs are mainly looking at ‘my-world problems’, not ‘real-world problems’. What this means is that they tend to solve problems only they’re familiar with,” he said. “People separate what they care about in business from what they care about in the world. For instance, an app for parking your car V/s a technology for helping poor families access healthy food.”
In his opinion, traditional VC funding process is not about ‘what you know’ but all about ‘who you know’. “Traditional VCs tend to support entrepreneurs who look like them, who are in their networks, or who fit certain patterns. Take the case of the US, where more than 75 per cent of VC funding goes to three states: New York, Massachusetts, and California. When it comes to India, less than 20 per cent of VC funding in 2016 went to companies with female co-founders, while only 3 per cent went to companies with solo female founders,” he opined.
Village Capital was founded in 2009 by Ross Baird (Founder and CEO) and Victoria Fram (Co-founder and MD). Prior to launching the fund, Ross worked with First Light Ventures, a seed fund focused on impact investments. Before this, he worked on the development of four education-related startup ventures: the Indian School Finance Company in Hyderabad, India; the National College Advising Corps in Chapel Hill, North Carolina; and two ventures using technology to promote civic participation.
Fram is Co-founder and the Managing Director of Village Capital Investments, its affiliated for-profit investment fund. Most recently, she worked at the Bill and Melinda Gates Foundation on the Program Related Investments team, analysing investment opportunities in the fields of global health and global development. Prior to that, she was an Investment Associate at Metropolitan, a global private equity real estate fund-of-funds.
With a corpus of US$17.7 million, Village Capital is mainly focussing on five key areas: health, education and financial inclusion (in economic opportunity), and clean energy and agriculture (in sustainability). It typically invests US$50,000 to U$100,000 each in startups.
To date, Village Capital has made over 70 investments globally, including 11 in India with three exits to its kitty. It is now looking to invest in another three in India in the next couple of months. Of the companies it has invested so far, 38 per cent are women. He claimed that 90 per sent of portfolio companies are still in operation.
Village Capital looks to make 12-16 investments a year, globally.
Besides the US, Latin America, and India, Village Capital has operations in Africa also. “We have a huge focus on African market. We have already done some primary works in fintech and agriculture in sub-Saharan African countries, with a focus on Nigeria and Kenya,” Menon said.
According to Menon, Village Capital — which finds, trains and invests in entrepreneurs solving real-world problems, mainly in the areas of economic opportunity and sustainability — is different from conventional VC funds. “Our process of selecting investments is unique: we put the power of investment in the hands of entrepreneurs themselves. Peer-selection changes the power dynamics in traditional investing, and deploys risk capital more efficiently and democratically.”
Village Capital looks for the most innovative, high-quality, early-stage startups in a sector, addressing hard problems on the ground and with significant potential for scale & impact.
Its Limited Partners include Jean and Steve Case, and The Kapor Center for Social Impact (founded by technology leaders Mitch Kapor and Freada Kapor Klein).
Investment readiness programme
In addition to funding, Village Capital also runs an investment readiness programme. Through this, it finds entrepreneurs through a very rigorous sourcing and due diligence process, then trains them through its 3-workshop investment readiness programme, and then finally invests in the top 2 from each programme, as selected by their peers.
The programme is divided into three stages:
1 – Find: we identify a clear problem area in a specific sector and specific market, source relevant ventures and select a cohort through a rigorous application process. This process includes building a database of 400+ ventures & finally selecting 12 to 15 ventures.
2- Train: Prepare ventures for scale, investment, and success and in the process, facilitate honest feedback among peers for self- awareness and improvement. This involves conducting three investment-readiness workshops over a time period of three to four months. Each workshop is 4-day long. The workshops may be held in different cities in order to connect the cohort with different investment and mentor communities.
3- Invest: The deep peer interaction throughout the program lays the foundation for our unique peer-selection methodology where the cohort acts as an investment committee and determines who among them will receive Village Capital investment. The cohort executes three trial-ranks where they evaluate each other to understand peer progress through the program, and then one final rank at the end of workshop 3. The top two companies emerging from the final rank receive investment offers of US$50,000 to US$100,000 each from VilCap Investments.
Village Capital has partnered with Omidyar Network, which is completely funding its ongoing programme for K-12 education entrepreneurs. Over the past seven years, Village Capital has supported more than 500 companies across 50 programmes in 13 countries.
Talking about future plans, Menon said: “We’re continuing to develop new strategies to reinvent venture capital. We are developing a framework to evaluate entrepreneurs that helps founders understand sector, geography, stage of development, and the type of capital they need. We plan to expand on initial pilots of this work over the coming year. We are also developing strategies to better evaluate entrepreneurial potential and better match entrepreneurs in their proper stage of development with the right company.”
The VC fund is also exploring alternative investing models because there is no “one size fits all” model that works for all entrepreneurs. Companies in many industries and geographies find that venture capital’s traditional tools – like tech accelerators or equity investing – are not the best fit, he said. “We continue to explore alternate investing models like revenue share, and refine our process to meet the needs of entrepreneurs where they are.”
Image Credit: Village Capital