SOCAP11: Village Capital and the Value of peer-based Evaluation
What if microfinance and angel investing had a baby? That was the question originally posed by Nathaniel Whittemore in his blog post in December 2009. The answer was Village Capital. Considering the history, it was interesting to hear live stories and practical experiences on how the innovative Village Capital model has been working in putting money in the hands of social entrepreneurs and democratized seed capital financing in the process.
According to Ross Baird, executive director at Village Capital, this idea was born to address the mismatch between funding needs and investible opportunities in the social enterprise sector. Inspired by early microfinance lending groups, where entrepreneurs select loan recipients from their own group, Village Capital crowdsources the most investible companies for investor partners. Along the way, Village Capital also improves entrepreneurial success with social ventures and accelerates the impact investing space by building a strong peer support and partnering with organizations such as Dasra in India and Hub Ventures in the U.S.
In a SOCAP11 track session on “People Powered Capital” moderated by Baird, we heard experiences from social entrepreneurs – Jen Medbery (Drop the Chalk) and Anoj Viswanathan (Milaap) – as well as some partner organizations – Neera Nundy (Dasra) and Wes Selke (Hub Ventures and Good Capital) on the key lessons and outcomes of the Village Capital facilitated process. Essentially, Village Capital uses a peer-to-peer evaluation, learning and investment model where fellow entrepreneurs in the program decide who gets the allocated funding. An interesting facet of this funding allocation model is peer collaboration and leveraging peer intelligence in the room – both Viswanathan and Nundy related instances where social entrepreneurs expressed strong desires to interactively learn from their peers instead of having “expert panels” after initial rounds in the exercise.
When asked whether there is a lot of competition among the fellow entrepreneurs, Nundy said that the competitive nature among the program participants just dissolves after initial interactions, and active collaboration and learning mindset emerges among the participants for procuring the peer-allocated funding. She noted that once the pre-defined process criteria are set and all the program participants know each other, “those who should win, typically win.” She also noted that interestingly enough, there was a huge disconnect between how the investors and peers ranked the social entrepreneurs in the initial round of the exercises. However, the rankings for allocation of funding to the entrepreneur between the peers and the investors were totally aligned toward the end of the program. Village Capital’s peer-selected organizations in India include Milaap, SMV Wheels, Under the Mango Tree and SABRAS.
One would wonder that while the program participants are already engrained in being a social entrepreneur, however they also need to appreciate and learn how the impact / early stage investors think. Medbery noted that going through the process of understanding and listening to the business plans of the peers helps one understand their own business plan as well as better appreciate business fundamentals cutting across sectors. Viswanathan was quite candid in admitting that pitching to peers was an exercise in realism as the numbers in the business plan were grounded in reality, as opposed to necessarily requiring “million dollar returns” and also did not require a “fancy Power Point presentation to cater to investor requirements.” Viswanathan credits the constant building and refining of Milaap’s business model as crucial outcome of the peer learning exercise facilitated by Village Capital and Dasra.
Village Capital appears to be an interesting endeavour in identifying and providing “money plus” value-add through peer power to help early-stage social business enterprises scale up and sustain themselves .