If Microfinance and Angel Investing Had a Baby...

by Nathaniel Whittemore · 2009-12-05 08:00:00 UTC
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...it would be the new Village Capital Fund.

Village Capital focuses on risky early stage social ventures like traditional angel investors, but is using a more cooperative, entrepreneur collaboration model borrowed from microfinance to make their investment decisions.

Village Capital is a part of the Grey Ghost/First Light family of investment companies. Grey Ghost has years of experience investing in microfinance, and as they started to identify the problem of deal flow (where good projects come from) and due diligence (how to vette unproven entrepreneurs), they saw an opportunity to borrow some of the microfinance model for US-based angel investing.

While each of their four pilot projects will have a slightly different model, the basic idea is that groups of entrepreneurs spend a few months learning about one another, sharing ideas, and preparing for an eventual pitch session. In the Bay Area pilot, which has just launched officially, entrepreneurs will be grouped in teams of 5 or 6. At the end of the two months, they will pitch first to another group of the cohort, who will allocate $25,000 to one project. Then they will pitch to each other, and voting will determine who gets another $75,000. The money will be invested as a convertible note.

I think it's a fascinating experiment. It seems to me that the main trade off for entrepreneurs is the time of committing a couple hours a week to meeting with a new group of people, plus the professional investment in new contacts, and the risk that you don't get anything, versus the new network opportunities and potential financial gain.

What's for sure is that institutions getting creative with seed funding for social innovators is immensely valuable both for the entrepreneurs who get funded and the sector as a whole. The more that people - particularly young people - see there is a viable financial pathway for for-profit social ventures, the more creativity and effort they will pour into them.

To learn more about Village Capital, or to apply for their west coast fund, co-hosted by the Hub, visit their website.

(Photo: -Gep-)

Nathaniel Whittemore is the founder of Assetmap. Previously he was the founding director of the Northwestern University Center for Global Engagement.
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