From its global newsletter to its major annual events, ANDE members have access to a multitude of platforms for promoting their work and co-creating knowledge with other members. The ANDE team is excited to introduce a new channel — the ANDE Member Spotlight — a series of short, interview-based blog posts highlighting an ANDE member organization and any new projects, recent investments, or ongoing research with interesting learnings that add value to the ANDE community.
“It’s not only about who you invest in, it’s also about how you invest.”
Village Capital helps entrepreneurs bring big ideas from vision to scale. Their mission is to reinvent the system to back the entrepreneurs of the future. Their vision is a future where business creates equity and long-term prosperity. Since 2009, Village Capital has supported more than 1,100 early-stage entrepreneurs through their investment readiness programs.
Heather Matranga, Senior Director for Strategic Innovations, spoke to ANDE about Village Capital and its new Family of Funds Strategy, a series of funds focused on investing in seed-stage, impact-driven startups through a variety of different vehicles.
The following interview has been edited for length and clarity.
Tell us about Village Capital and the role it plays in the SGB ecosystem.
Village Capital’s mission is to reinvent the system to support entrepreneurs solving problems in sustainability and economic opportunity: sectors like food and agriculture, financial health and the future of work. We have offices in the United States, Latin America, Sub-Saharan Africa, and South Asia, and we’ve recently started operations in Europe and the Middle East.
This work is more important than ever. The recent coronavirus pandemic has not only created new challenges, but has also exacerbated deep systemic inequities. There is no individual or community that won’t be impacted in some way by COVID-19. We’re betting, as we always have, on entrepreneurs who draw from their lived experience and often come from communities or backgrounds that sit in investor blindspots to build creative solutions to the problems.
We support entrepreneurs through several strategies.
First, we are changing the decision-making process for distributing capital to entrepreneurs that are often left on the sidelines of the current venture capital system. We have built a process of peer selection that brings together a group of entrepreneurs through an accelerator and asks them to evaluate each other’s “investability.” At the end, they collectively decide who will receive investments from our affiliated investors.
Second, we have a platform approach to support capacity development providers such as accelerators that are focused on catalyzing more investment and helping the scale of early stage entrepreneurs. Our VilCap Communities program helps with the capacity building efforts of those accelerators. We’ve also launched Abaca, an online matching tool to virtually connect entrepreneurs and investors.
Finally, we facilitate direct investments in entrepreneurs. We have an affiliated investment fund, VilCap Investments, where we invest directly into companies through our peer selection process. We’ve made 110 investments through this process.
In 2019, VilCap Investments made its final initial seed investment. Earlier this year, we launched a brand new “Family of Funds” strategy: a series of funds focused on investing in seed-stage, impact-driven startups through a variety of different vehicles. The funds will invest in startups that are involved with Village Capital — through our accelerator programs, Abaca, or otherwise.
What does the Family of Funds strategy look like? How did it come to be?
Our first fund is fully committed for initial investments, and is now shifting its focus to doubling down on the existing portfolio. This has given us the opportunity to evaluate our role in the ecosystem and new strategies to meet our mission of reinventing the system to catalyze more capital into early stage entrepreneurs. We see two emerging needs: 1) to develop a more diversified investment strategy, tailoring our Village Capital-branded investment vehicles to the needs of specific markets and sectors; and 2) the need for more tailored intermediary support to manage the lifecycle of investments for mission-aligned partners interested in early stage impact investing
Our family of funds strategy will allow us to focus our investment vehicles by sector and region, experiment with innovative capital structures, and scale our reach to be a “force multiplier” for early stage capital. Our first fund under this strategy is a partnership with the MetLife Foundation. We are managing a pool of capital on their behalf and investing into early-stage financial-health companies globally.
How do you see this Family of Funds evolving over the next few years?
In the next few years, we hope to facilitate millions of dollars of investment as part of our Family of Funds, which we will deploy in different markets around the world. It is very important for us to ensure that we are deploying the right type of capital into entrepreneurs.
We are starting to focus on innovative financing structures since the Silicon Valley “growth at all cost” mentality might not be best suited for many entrepreneurs that we are looking to support. This does not mean that we won’t also leverage equity, but that it might need to take a different form in terms of return timelines and expectations. We are currently exploring vehicles through which we can leverage different financial tools (e.g. revenue-based financing) that are tailored to the needs of the markets and of the entrepreneur we are supporting or hoping to support.
What elements of this new strategy tie into to ANDE’s urgent issues (gender equality, decent work and economic growth or climate and environmental action)?
Our strategy focuses on three verticals: the future of work, financial health and human sustainability (the intricately tied systems of health, food, and the environment). Within these sectors, we support entrepreneurs that sit in venture capital “blindspots”- those that have lived experience with the problems they are solving but are often unable to attract investors because they don’t look a certain way, live in a certain geography, or aren’t working on problems most investors are familiar with- this includes a focus gender lens investing. Further, many of the entrepreneurs we are supporting tend to have an outsized impact on women’s economic empowerment.
What are some takeaways that might be helpful to the rest of the ANDE community? What are some best practices they could incorporate into their strategic initiatives?
We started Village Capital on this very radical idea of peer selection, which we hypothesized would lead to more inclusive and commercially promising investments. Rather than having our managing director in Silicon Valley making investment decisions, we have entrepreneurs make those decisions themselves. Ten years later, we have found this process leads to a more diverse and high performing portfolio: 46% of our portfolio is comprised of female-led companies, 30% in our US portfolio are companies led by people of color, and our companies have an 86% survival rate.
One of our main learnings over the last decade has been: “it’s not only about who you invest in, it’s also about how you invest.” To help more entrepreneurs who are having a critical impact scale their solutions, we need to change our investment strategy, change our decision-making process and change our investment structures. It is important to evaluate the investment tools available and adapt as necessary since the traditional model might not work for every funder or type of investment you are willing to make.
The key is to innovate and evaluate opportunities to improve in a data-driven way. We have been fortunate to work very closely with ANDE and ANDE’s Global Learning Accelerator Initiative (GALI) to assess the effectiveness of our approach and of our accelerator program at large. This experience has taught us several ways to further experiment with and further innovate our strategies to support early stage entrepreneurs.
As you are building out this new strategy, are there any calls to the ANDE network?
I believe that there are a lot of opportunities to partner with organizations that are interested in exploring early-stage investments and with organizations that are interested in learning more and sharing their best practices. We are especially interested in knowing where they have seen successful and unsuccessful in their investment strategies. If there are organizations interested in learning more about our Family of Funds strategy, please reach out!