May 25, 2017
How to integrate your social mission with your business model
You can have your cake and eat it too
As a founder, I’m always optimizing our limited dollars between competing goals. One area I’ve never had to compromise is social mission. This is because we’re fortunate to have mission alignment: at my company, Fig, our business return is maximized when our customers achieve the highest possible credit score.
May 23, 2017
Expanding Our Global Collaboration with PayPal
In 2017–18, we’ll continue our work with PayPal, running FinTech investment-readiness programs in the US, Latin America, India and for the first time — sub-Saharan Africa
For the past three years, we’ve collaborated with PayPal to support entrepreneurs around the world that are working on improving financial health. Today, I’m thrilled to announce that we’re continuing and expanding that collaboration and we’re kicking off our 2017–2018 schedule with a summer program for American entrepreneurs.
Read more about our announcement below, including the list of ventures in our FinTech US: 2017 class!
Village Capital and PayPal (Nasdaq:PYPL) today announced an expansion of their global collaboration to support entrepreneurs focused on financial health in several countries, including, for the first time, sub-Saharan African. The companies also announced the twelve American entrepreneurs that have been selected to participate in the FinTech: US 2017 program.
Together with the support of local ecosystem partners, Village Capital and PayPal will operate four investment-readiness programs in the next two years, supporting more than 40 emerging FinTech innovators across the US, Latin America, India and sub-Saharan Africa.
At the end of each program, participating entrepreneurs will evaluate each other across six indicators of investment readiness and direct up to $100,000 of investment capital provided by this program to each of the top two peer-selected entrepreneurs.
“At the heart of PayPal’s mission is our commitment to democratize financial services and help improve the financial health of families and small businesses around the world. Through this collaboration, we are supporting Village Capital’s global efforts to inspire and support social impact entrepreneurs who are addressing financial health challenges by developing community-based solutions that assist those that are currently underserved by the global economic system,” shared Franz Paasche, Senior Vice President, Corporate Affairs, PayPal Inc.
“Our partnership with PayPal has added tremendous value to entrepreneurs participating in our programs, thanks to the company’s intrinsic values and focus on improving the financial health of global citizens. Entrepreneurs who have joined our programs have benefited hugely from the expertise of their incredibly talented team,” said Village Capital President Ross Baird. “We’re delighted to expand this partnership across all of our core geographies, now including Africa, and we can’t wait to see the solutions the entrepreneurs develop that address current market challenges.”
In the US, the first program this year will be Village Capital: Fintech US 2017, for entrepreneurs creating accessible, efficient, and affordable financial services for underserved communities and small businesses. The workshops will take place this summer in Detroit, New York City and San Francisco. The full class for FinTech US: 2017 will include:
- BlueCheck provides identity and age verification services for e-commerce platforms.
- CNote delivers savings alternatives 40X better than traditional banks with 100% social impact.
- Finix Payments offers a B2B payments platform for banks, acquirers, and enterprises to enable push payments over debit card.
- Hugo Insurance is the world’s first pay-when-you drive liability car insurance, for people who rely on their car but can’t afford big premiums.
- Jumpstart Insurance Solutions is a first-of-its kind resource that quickly gets money in people’s hands when they need it most — after a natural disaster.
- LendStand provides innovative working capital solutions for public projects.
- Medxoom makes healthcare payments simple via a modern, mobile-first payments platform.
- MyStrongHome makes homes and families more resilient to hurricanes and extreme weather, by combining construction upgrades with insurance-based finance.
- PayKii Inc. enables people living abroad to pay expenses for their families back home by connecting remittance companies and financial institutions.
- Sagents auto-verifies minority- and women-owned business (MWBE) status, tracks corporate spend, and measures economic impact with MWBEs.
- Stackfolio is the online marketplace for loan trading, powered by a data research platform.
- token introduces the safest way to pay for anything, everywhere, making fraud a thing of the past for consumers and merchants.
PayPal employees have been involved as mentors on Village Capital programs since 2014, contributing to the success of more than 70 businesses that have gone on to serve more than 31,000 companies and raise more than $28 million in investment. PayPal has funded four of these programs, including a program in India in 2015 and programs in the US, Mexico and India in 2016.
May 17, 2017
African startups are stronger together: What we learned hosting our first cross-continental African program
The Village Capital Africa team just just wrapped up our seventh investment-readiness program for early stage ventures in sub-Saharan Africa: FinTech Africa 2017, in partnership with the MasterCard Foundation and the DOEN Foundation.
May 8, 2017
Zero Barriers Moonshot: Could $1 trillion restore the American Dream?
May 4, 2017
Pattern Recognition Is the New Insider Trading
3 ways that investors can get past bias and find deals that are hidden in plain sight
I still cringe when I think of that quote.
I’ll never forget the day that I read the famous quote from John Doerr, Managing Partner of the illustrious VC firm Kleiner Perkins, investors that I both respected and admired tremendously. Until that day.
“If you look at Bezos, or [Netscape founder Marc] Andreessen, [Yahoo co-founder] David Filo, the founders of Google, they all seem to be white, male, nerds who’ve dropped out of Harvard or Stanford and they absolutely have no social life. So when I see that pattern coming in — which was true of Google — it was very easy to decide to invest.”
It was a throat punch. For one of the most successful and celebrated VCs in history to openly state that, investment thesis aside, his decisions come down to targeting privileged young, white men was a repudiation of all entrepreneurs of color and females. The statement reeked of country club exclusivity: This is our club. No outsiders allowed.
Pattern recognition is implicit bias turned practice. It’s the dark art that becomes culture. Simply ask Travis Kalanick and Uber, as internal struggles with their biased culture have become public. Pattern recognition is the equivalent of insider trading. It’s just as prevalent and just as insidious. In the long run, it’s just as bad for investors as it is for entrepreneurs.
So how do you — as a VC, as an investor, or as any decision maker in the innovation process — avoid pattern recognition and its effects? Here are three specific ideas:
1. New Decisioning Models
Venture investors must experiment with new decision models that eliminate the effects of pattern recognition and implicit bias. Among the most promising investment strategies is Village Capital’s peer selected investment model, in which a cohort of entrepreneurs evaluates their peers on investment potential.
Peer selection enables entrepreneurs to evaluate a startup and startup leadership on their own merits (market potential, team strength, founder coachability, go-to-market strategy, traction, execution) by the very peers who are closest to it. No more Demo Days, no more VC panels to determine winners. As a past participant in one of their investment-readiness programs, it is rigorous and thorough and no amount of showmanship (or showwomanship) can conceal the Achilles Heel(s) of your startup faster or more accurately.
2. Expand Your World
Steve Case’s Rise of the Rest campaign has made geographic bias into front page news. Thanks to Steve, it’s now widely known that nearly 80% of venture capital in the United States is locked into just three states (CA, NY and MA). This is inherently prohibitive for entrepreneurs of color, as the US Census Bureau reports that over 55% of African Americans live in the South. Overlay the venture capital map over the Racial Dot Map of the United States, and you’ll see the problem clearly.
3. Use New Distribution Channels
Effective distribution strategy is a key factor in the success of any startup. So it amazes me that venture investors who obsess about the distribution strategies of their portfolio companies don’t apply those same principles to find new portfolio companies.
VCs should further utilize network nodes like the tech hubs within the Google for Entrepreneurs network, and tap into the global web of vibrant tech spaces in cities like Durham, NC; Nashville, TN; Austin, TX; Detroit, MI and many others. These hubs are always eager to share information, and they provide access to a wider pipeline of entrepreneurs off the typical flight path: San Francisco> New York> Boston.
Attend and engage with founders at venture conferences specifically for people of color. Begin with resources like Thomas K.R. Stovall’s Top Conferences for Tech Founders of Color list: Power Moves NoLa, Black Enterprise’s Entrepreneur Summit, Miami’s Black Tech Week, Black Wall Street-Homecoming and an increasingly more diverse SXSW. Resist the urge to avoid SXSW because it’s “overrun with new people,” the purist’s excuse. There are great overlooked entrepreneurs out there but you won’t find the ones you’re missing if you don’t change where and how you’re looking.
Investors: pattern recognition presents a risk to your returns and works against your investment thesis. Fall victim to it, and you’ll be relegated to fighting your way into crowded, overpriced rounds along with every other fund. However, if you’re truly seeking alpha, then invest in underutilized, undervalued assets: founders of color based in markets that offer a lower operating cost basis. Use different decision models, expand your universe of network nodes and utilize new channels to access deals that are hidden in plain sight.
April 24, 2017
How do investors evaluate founding teams?
Our attempt to answer one of VC’s trickier questions
This article is reposted from Inc.com
Many investors — including our team at Village Capital — evaluate founding teams on a largely subjective level: “He just gets it” or “She has grit.”
Sure, investors look at what founders have previously done — if they previously exited a company, or have an MBA — but this focuses on actions more than character. Some investors look to studies on leadership traits by Bloomberg and Gallup, but these don’t give a full picture. For the most part, investors rely on instinct, leaving one of the most important pieces of the investment decision on “a feeling” that is surely interpreted differently by different people.
I knew we could do better.
Several months ago, our team set out to tilt against the windmills — to create a new tool to identify and communicate what makes a founder “strong”.
We partnered with the psychometrics consultancyWaypoint People Solutions to survey 500 of our alumni companies — both founders and their teams — around eight personality traits that commonly correlate with company performance.
We gained a lot of insight into our alumni and developed some early findings to use when selecting companies for investment — both as a tool for highlighting outliers and to provide us with information to dive deeper into diligence. We call this tool, which is still in development, STAR (Startup Team Aptitude and Readiness).
Below are a few early takeaways from the STAR survey.
Spontaneity can have its downsides
One of the traits we measured was whether an entrepreneur is an “originator”. An originator is creative and spontaneous — they make decisions quickly and decisively. Investors often consider these qualities a strength. But we found that being an “originator” was the trait most negatively correlated with success — what’s more, this negative correlation held true in the founder’s self-reflective surveys and the team surveys. The takeaway: this decision-making style can be great for initial idea generation, but less useful when it comes to execution. The most successful businesses in the study had founders that were focused, calculated, and deliberate.
Concern for people can actually be a negative trait
This was another surprise, given that compassion and consideration are typically regarded as strengths in leaders. Our survey found that the trait of “people-focus” — a perceived level of concern for others — was negatively correlated with success. One hypothesis is that overly “people-focused” leaders possess a strong need to be liked by others and tend to be overly considerate. This can result in failing to enforce rules, guidelines, and deadlines.
One interesting finding here: the negative correlation was strongest when the team thought their founder was “people-focused” (versus what the founder thought of themselves). While I’d like to stop short of promoting the idea that founders need to be mean to get the job done, there is certainly a case to be made that teams needs to feel their leader is not easily swayed and that they can make hard decisions — even if it means firing the wrong hire.
Self-awareness is critical
Since we surveyed both founders and members of those founders’ teams, we were able to compare the two viewpoints. We found that our most successful companies had a very aligned understanding of one another’s traits. The smaller the discrepancy between the founder’s self-awareness and his/her team’s perception of the founder, the higher the firm’s performance. From my experience, an early startup is never going to have the perfect balance of traits, but it is incredibly important that the team is in sync with each other so they can collaborate without a great deal of friction.
Teams with a female founder perform more strongly
This is more of a meta-finding (gender isn’t an implicit “trait”), but the results were too clear to leave out. Women-founded companies performed stronger in nine out of ten of the categories we measured of subjective and objective performance. This means they are outperforming companies with only male founders in YoY and LTM Revenue, Funds Raised, and company-specific objective and subjective goals (this aligns with lots of other research).
So far, women founders are also reported to have a higher level of self-awareness. Conclusions cannot be made at this point, but the data suggests that this could be a key reason why women founders are more successful.
As we build on this data set, we hope the tool will become more and more of a predictor of success. We will be able to dive deeper into the traits that are correlated (or cross-correlated) with strengths to understand better and highlight strong teams. We will also be able to develop better the tool to share more information with the founder and team and help them grow. A key point: this survey was conducted entirely with early-stage companies, and the lessons learned apply to founders that are working to get a company off the ground: it is very possible that CEOs of larger companies (who are not always the original founder) need different qualities.
What I learned most from this exercise is how easy it is to misinterpret extremely nuanced traits — and that as investors, we have to get better at it. We aren’t going to be able to solve this problem ourselves, but hopefully, by sharing what we’re learning, we’ll hear from others about what they are building and get there faster together.
Brittney Riley is the VP of US at Village Capital, a venture capital firm that discovers, develops and invests in entrepreneurs solving real-world problems. Special thanks to the Hitachi Foundation for their support in this research and Stephen Jeong from Waypoint Solutions and Ebony Pope, Amanda Jacobson, and Ross Baird from Village Capital for their support in outreach and design.
April 20, 2017
How you can help the entrepreneurs you care about succeed: Lessons from 26 Communities worldwide
Silicon Valley is the envy of the entrepreneurial world, and it deserves to be. It’s a seamless ecosystem for entrepreneurs: if you’re in the Silicon Valley system, and have a great idea, you can find the resources you need to succeed.
But in other cities, local leaders have had to create this ecosystem from the ground up.
In 2007, in Boulder, Colorado, Brad Feld and Dave Cohen built Techstars as an early “accelerator”, surrounding new businesses with the resources and mentors they needed to succeed. Since then, local leaders have launched accelerators in more than 1,000 communities across the world.
But do accelerators and other entrepreneur support programs actually work? In 2013, our team at Village Capital joined with Emory University and the Aspen Network of Development Entrepreneurs to release the first global research study on entrepreneur support programs: Bridging the Pioneer Gap. Three years later, the Global Accelerator Learning Initiative published a first-of-its-kind study to find out what works and what doesn’t in acceleration: looking at 15 of Village Capital’s investment-readiness programs, they found that our model was helping entrepreneurs raise more capital — and that we might want to spend less time on certain things, like teaching financial modeling.
Last year, our team at Village Capital set out to take this question — “What works in entrepreneur support?” — one step further. We teamed up with the DOEN Foundation, the Kauffman Foundation, and the Sorenson Impact Foundation to conduct a real-life experiment called VilCap Communities. In the pilot year, we selected 26 community leaders who committed to using Village Capital’s peer-selected investment model to invest $50,000 into local entrepreneurs. While not every program succeeded, all the programs provided instructive insights into how to build effective communities.
Here’s what we learned.
1. Know the problem you’re solving: Helping entrepreneurs raise money isn’t a natural outcome: it’s a distinct skill set
Most companies are under-capitalized: 78% of startup investment in the US, and 50% of startup investment in the world, goes to just three states, while less than 5% goes to women and less than 1% goes to people of color. Ecosystem builders can help.
Yet if the problem you’re solving for is helping entrepreneurs raise money — getting companies ready to close a deal with an investor — make sure you’re building the right solution.
Too many entrepreneur support programs promise everything to everyone. There’s a distinct difference between ‘business model development’ and ‘leveling up for investment’, but most entrepreneur support programs spend their time teaching the former, with the goal being to help companies validate their business model (think: “Lean Startup”, or “Business Model Canvas”) and then let entrepreneurs loose on a Demo Day, introducing them to investors — often with poor results.
I started Village Capital in 2009 to help entrepreneurs specifically level up for investment. Our core innovation: a peer-review process through which entrepreneurs in each program actually play the role of investor. Does this make for a better program? Although most of our 26 Communities chose to customize the tools we provided (only 23% used the full curriculum), 100% of the communities used peer-selected investment.
The results were positive: 92% of businesses felt that the program made them more ready to raise investment for their next stage of growth. Beyond that, 92% of entrepreneurs connected with a meaningful mentor, 80% connected with a potential partner, and 64% connected with a potential investor.
The lesson: Know the problem you are solving. Not every accelerator or entrepreneur support program should focus on investment-readiness. Some specialize in offering product validation; others help founders develop strategic partnerships with big institutions. But if your promise and goal is helping entrepreneurs raise capital, make sure your pedagogy and learning outcomes are targeted to measurable increases in investment-readiness.
2. Be honest that building an ecosystem isn’t a profitable end in itself (and that’s ok!) Entrepreneur support organizations are infrastructure, not businesses. Get real about your goals beyond profitability, and track them.
There’s an old saying: “The cobbler’s son has no shoes.” The idea applies here: accelerators and incubators that are helping local businesses often have trouble with their own business models.
In our evaluation of the pilot, we found that 55% of every dollar taken in by the 26 programs was philanthropic. At the end of 12 months, 11 of the 26 communities were unable to reach their capital goals for launch — and none of them were “sustainable” without philanthropic subsidy.
As it turns out, entrepreneur support organizations may never be “revenue-sustainable” in a traditional sense. That’s actually OK! These organizations, when effective, are critical infrastructure for a city or a community, and should be treated as such.
There are two important takeaways here. For policymakers, foundations and elected officials who commit publicly to supporting entrepreneurs: remember that you’ll more than likely need to put your money where your mouth is, and support those who support entrepreneurs.
For entrepreneur support organizations: make sure you are accurately communicating what your goals are and sharing your progress with entrepreneurs, funders and any other stakeholders. Are you trying to make every company that goes through your program ten times more profitable? Are you trying to build a more resilient community? If you fail to set expectations, you risk alienating those who can support you financially.
3. Topophilia: Communities should focus on sectors with deep and local resonance
Last fall over breakfast, I asked John Hickenlooper, Governor of Colorado, why his state had four of the top 10 best-performing ecosystems in the country. “Topophilia,” he answered. The word, meaning “love of place,” highlighted a Colorado truth: Fort Collins is distinct from Boulder and Boulder is distinct from Colorado Springs, and they are all thriving because they are trying to be the best version of themselves.
Our VilCap Communities hypothesis from the beginning was that cities shouldn’t try and recreate Silicon Valley; they should be the best version of themselves. Many of our programs embraced a sector focus that resonated with the city. For example, Philadelphia launched a financial technology program, building on Philadelphia’s institutional history of financial services R&D since Benjamin Franklin designed the coins for the first U.S. Mint. Cincinnati’s program focused on water innovation, building on their history as a brewing town and their private sector leadership in the water sector.
The results for these sector-specific programs were strongly positive. The cities that embraced a sector-meets-city thesis raised money more quickly, attracted better entrepreneurs, and were more likely to run and succeed.
. . .
VilCap Communities 2.0: What’s Next?
Rather than revolving around one distinct program, VilCap Communities 2.0 will be organized around three key skill sets that everyone who wants to support entrepreneurs needs to excel at, and work with partners worldwide to build solutions around each:
FIND: A tool to recruit for entrepreneurs like we recruit for athletes
Jim Clifton, Gallup CEO, often comments that if you’re a world-class athlete, then wherever you live, you’ve got a path to success. Our society spends billions of dollars recruiting athletes each year — why can’t we do that for people who build businesses? The single most common resource that our Communities requested was a tool to better recruit and evaluate companies better.
In the coming months, we’ll be launching a “FIND” working group of investors and entrepreneur support organization who want to think differently about how to source and evaluating communities. If you’re interested in being a part of it, let us know.
TRAIN: Best practices in helping companies raise money
92% of the entrepreneurs in the pilot year reported that the peer review model helped them level up for their next stage of investment. Building on lessons learned from the past year, we are working to combine our successful curriculum with an investor/entrepreneur curation tool.
We’re going to build on our work over the last year and launch a more focused “TRAIN” working group of people who are creating, implementing, and sharing best practices in investment-readiness programs. If you’re interested in joining, please let us know.
INVEST: Innovation in new financing vehicles
One of the organizing questions of VilCap Communities: “How do we get more venture capital into more communities across the world?” Maybe that’s the wrong question. Fewer than 1% of companies worldwide raise venture capital, and in most industries and places, “one size fits all” tools, like tech accelerators or venture capital funds, might be the right tool — or might not fit.
We’ve seen many other models work better in some contexts. For example, many agricultural businesses actually prefer a revenue-share structure to traditional equity investment, including Fin Gourmet, which is creating living wage jobs in one of Kentucky’s poorest counties and was recently profiled in Bloomberg. And my co-founder Victoria has highlighted other ways that new and alternative investment models are delivering better results.
Last week, the Kauffman Foundation convened a design session of 45 investors and entrepreneurs discuss a trillion-dollar “Moonshot” — how could we get a trillion dollars of new capital into entrepreneurs in the next decade? We’re not going to solve the problems we have by only using the investment structures we’re most familiar with. A third bucket of VilCap Communities 2.0 will be to explore blended investment options that look past the one-size-fits-all equity model, and instead deliver capital based on company needs: let me know if you’re interested in getting involved.
. . .
We’re releasing a full report with more of these learnings in the coming weeks. To the partners who have made this ambitious pilot possible; thanks for going on the journey with us. In the meantime, if any of the ideas here seem like something you’d be excited about, e-mail me at email@example.com.
April 11, 2017
The entrepreneurs have spoken: Huli and Metix Medical selected for US$75,000 investment