Ross Baird, Village Capital: ‘We are putting power over resources in the hands of innovators’

By Bertil van Vugt on September 10, 2012


After successful events in the US, Brazil, India, China and the UK, Village Capital has now landed in Africa – Kenya to be precise. In partnership with GrowthAfrica 18 entrepreneurs were selected who are now competing in a four-month accelerator program – and the two winners are chosen by the contestants themselves. VC4Africa spoke with Village Capital director Ross Baird.

What is Village Capital and what is your main aim?

“Village Capital provides opportunity to entrepreneurs looking to build successful businesses that create a positive impact on the world. We run educational programs for start-up entrepreneurs through a uniquely democratic model that emphasizes peer review and support.

Our programs focus on addressing critical gaps that, if done right, enable businesses to take off—getting the value proposition, creating a validated product, and building a great team beyond just an inspirational founder.

We really trust the entrepreneurs to get it right, putting our money where our mouth is: at the end of each program we invest in two enterprises, with a unique selection process: the entrepreneurs themselves decide! We believe that putting power over resources in the hands of innovators can change the world.

This year, we’re launching our first program in Africa in partnership with GrowthAfrica at the GrowthHub; we’ve got 18 incredible entrepreneurs and couldn’t be more excited about the possibilities.”

Can you tell us about your activities so far?

To date, we’ve launched 14 programs worldwide, serving over 250 enterprises, working in the US, Brazil, India, China, the UK; this is our first program in East Africa. Our enterprises have served over 10,000 customers, created 1,000 jobs worldwide, and have collectively raised over $20 million. 26 ventures have been picked by their peers for funding, and we’ve been the first funder for 85% of them.

The entrepreneurs love the program: 96% would recommend the program to a peer. The average program lasts about three months, but over 90% of enterprises are still meeting with their peer groups after the program. And we’ve seen some unexpected results: women are three times as likely to receive funding as men.”

The entrepreneurs who participate in Village Capital are choosing two winners. How does that pan out in practice?

“At the end of each program, the entrepreneurs will rank one another, and the top two according to a cumulative peer rank get $50,000 in committed capital apiece. 80% of our enterprises have said the process was more ‘cooperative’ than ‘competitive’ — these men and women judge one another in an astoundingly collegial way. We do this through transparency and constant, iterated feedback.

Two weeks ago was the second session in Nairobi, and 25% of the way through, the enterprises went through their first ‘trial rank’. Entrepreneurs scored one another on six criteria: team, product, customer validation, financials, impact/scale, and strategy for return of capital. Sessions are totally transparent — you have to put your name behind all your votes — and you can’t score yourself. We view this as a ‘check-in’ where peers can point out, a quarter of the way through, your biggest blind spots.

If you get ranked highly in the trial rank, that’s great, but don’t get too overconfident! And if you get ranked lowly, well, it’s only encouragement to greater success. In one previous pilot, an entrepreneur got ranked last—and totally re-tooled her business model, creating a much stronger value proposition. Based on her growth and traction, she got picked for the investment at the end. In another, an enterprise got ranked last, and the entrepreneur who founded it later dropped out and joined another entrepreneur from the cohort to form a much stronger team. They’ve now done over $500,000 in revenue in their first year.”

When I visited Village Capital Nairobi, I heard critical feedback from the contestants after their competitors held their 1-minute pitches. Why does that work?

“Unlike typical feedback from investors, who will often listen politely to a pitch, give a couple of bits of token feedback, and say ‘don’t call us, we’ll call you’, the constant feedback, revision, and drive to improve that peers give one another spurs on the perpetual agility that is necessary for a successful entrepreneur. We believe this process finds good peer-selected investments, but more importantly, the process alone produces stronger companies across the board.”

Currently Village Capital is taking place in Africa for the first time. How was the response and what can you say about the level of the entrepreneurs?

“This is probably our most successful outreach yet worldwide. We received almost 80 applications from across East Africa, and held a ‘pitch day’ for 30 finalists. The energy, enthusiasm, and strength of the applications was really incredible. In the end, we picked 18 strong enterprises that can go up competitively against any of the 250 enterprises we’ve got across the globe. Our program focuses on enterprises seeking both scale and impact: we’re looking for enterprises who are building viable business models that are also seeking a change in the world beyond just financial returns.

In our first trial rank, the top two as picked by their peers were Kytabu, which is developing a $10 tablet computer for slum areas, and Takamoto, which is bringing power to smallholder farmers through a unique pay-as-you-go model — both enterprises have a ton of potential. But we’re also seeing Evesmama, a chain of branded midwives, iProcure, which is addressing major contract buying to enable African suppliers to build a better Africa; Lipisha, which is helping small businesses better handle mobile money; and SchoolBazaar, which is enabling families to pay school fees in a better and more cost-effective way. You can see the entire cohort on our website.”

One of the participants of Village Capital Nairobi is doing his 1-minute pitch.

What do winners of the contest get? And how have the winners performed so far?

“We are investing a $50,000 convertible note in each of the two winners; 50% of the capital is provided by us, and 50% by our local partner – in Kenya this is GrowthAfrica. Our hope is that this is enough for the enterprises to go from proof-of-concept to launch, and either raise another major round of financing or get to a point of self-sustainability.

To date, of the 26 enterprises we’ve invested in, about one third have achieved major commercial financing or revenue success; one-third are too early to tell; and one-third are either going along slowly or have closed up shop. This is pretty comparable with the commercial venture world—but given that our ventures are peer-selected and peer-supported, our model is way more scalable!”

Tell us about your model and the partnerships with local organizations on the ground?

“We know we don’t have all the answers, and can’t do it alone. In each place we operate, we seek to work with best-in-class local partners with whom we can both operate a program and co-invest. In Nairobi, we selected GrowthAfrica for their outstanding track record and reputation among entrepreneurs to launch our first Village Capital in Africa. GrowthAfrica, founded almost 15 years ago by Johnni Kjeelsgaard and Patricia Jumi, has been active in the start-up space here in Nairobi for quite a while, and are the ideal partner to bring local knowledge and operational ability to Village Capital.

And we’ve learned a lot from them already. They’ve built on our curriculum quite a bit, designing and implementing a series of exercises and a pattern of thinking that has influenced how we think about our program across cohorts. Our best partners, like GrowthAfrica, not only implement stellar programs, but also change the way we think about doing business globally for the better.”

What are the biggest differences between the startup scenes in India and Kenya?

“Great question. A few things. First, the start-up sector is more crowded in Kenya compared to India, with a flood of accelerators, funds, and grant money to start-ups. In some ways, it’s a good thing; we were pushed harder here than anywhere else, while recruiting for our program, to articulate our value proposition to enterprises.

Second, basic technology infrastructure — specifically, the M-Pesa payment platform — has helped make innovation possible. In Nairobi, I’ve seen a lot of people leveraging what’s already out there (e.g. payment solutions) vs. creating their own systems, something that you see by necessity in India.

Third, entrepreneurs in Kenya are not in the “culture of fundraising” — which is often a good thing. In many start-up hubs across the world, entrepreneurs too often define success by how much money they’ve raised. In Nairobi, where investment is rare, and — for reasons outlined above — successful entrepreneur-investor agreement is rarer, fundraising is off the radar for most Kenyan businesses. Entrepreneurs focus much more on revenue than cash in hand. Finally, the weather and climate are unbeatable — Nairobi is much better than Mumbai in the middle of the hot season or the monsoon season!”

What are your plans for the future?

“We’ve had a tremendous experience in Nairobi already, and while we’re waiting to see how this program concludes, we’re already looking at what a second cohort in Nairobi might look like next year. And in the past two weeks, we’ve been learning about amazing things going on in Kampala, Mombasa, Dar Es Salaam, even Kigali and Addis Ababa. I think it’s safe to say we’re very eager to do many more programs like this in East Africa, and we’re looking for great people to work with!”

Visit the Village Capital website for more information

 

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