Early-stage entrepreneurs worldwide face a major resource shortage.
It’s too expensive for traditional investors to do due diligence on seed stage deals, especially in emerging markets. The problem is especially bad for early-stage entrepreneurs solving major problems in society — of more than 300 self-identified impact investors worldwide, just four make investments of less than $250,000 per deal. Entrepreneurs often cannot approach the few investors who do seed funding without first having raised a “friends and family” round — limiting entrepreneurship to the tiny percentage of the population with access to a high net worth network.
Of more than 300 self-identified impact investors worldwide, just four make investments of less than $250,000 per deal.
At Village Capital, we run programs to source, train, and invest in entrepreneurs around the world tackling issues in agriculture, education, energy, financial technology, and health. We make our investments through a unique, peer-selected model that makes early-stage deals more cost-effective for investors. In each program, the participating cohort of around twelve entrepreneurs is tasked with turning a critical eye to their peers, evaluating each through the lens of a traditional investor. All of our Village Capital investments are made through this peer-selection process, in which entrepreneurs rate each other based on the following six criteria:
1. Entrepreneur and team
Is this team capable of getting the job done? What are the key activities this company needs to do—and how do we know that this team can do it? If the team is building a technology, the core team better be able to do it. If the team is selling a product, we need to know that the team can sell. We evaluate a team’s ability to do the job—not their resume.
What is the product? In a basic sense, is this a product that people understand how to use the right way? Is it something that is easy and enjoyable to use? And is there something that is significantly different enough about the product to encourage people to change behavior—a really difficult sell to most people?
3. Customers and competition
We look for a “solution to a problem,” not a “solution looking for a problem.” Who is the customer? What is the problem they experience every day? How does this product solve the problem? And most importantly, what evidence do we have that customers believe this is a solution?
We look much more closely at the “unit economics” of this product—what each customer is costing, and the revenue they bring in vs. long term financials. How much does it cost us to acquire one customer? How much is each customer likely to contribute in the long term?
5. Outcomes (impact and scale)
Is this product completely changing a system (or tinkering around the margins)? How big can this company grow? What difference does it make—is this a problem worth solving—and how is the company measuring that?
6. Investor liquidity
How will the investor get a positive cash return on investment? Profitable companies do not necessarily mean profitable investments. What is the company’s liquidity strategy?
In each of our programs, two entrepreneurs are selected by their peers based on those criteria to receive an investment from Village Capital. Over the last eight years, we’ve made 45 investments based on that model — more than any other impact investor worldwide — and we look forward to making more!