NEWSVENTURE CAPITAL

Last year, First Light Ventures stepped into the seed stage social venture funding void in a big way with their innovative "Village Capital" program. Now, they're teaming up with the Hub Bay Area to pour three-quarters of a million dollars into social ventures over the next two years. Of course, the money is delivered with a twist.

First Light is the seed stage arm of Gray Ghost Ventures, an Atlanta-based firm that cut its teeth innovating with capital for microfinance. Founder Bob Pattillo and his team quickly wanted to move into the seed space, but weren't sure of a cost effective way to perform due diligence on such unpredictable young companies.

The solution they came up with was to invest social entrepreneurs themselves to vette their peers and make the investment decisions on behalf of the firm. Inspired by the village associations that provide collateral and risk mitigation for microfinance loans, the so-called Village Capital funds brought together cohorts of 10-20 social ventures who got to know each other over the course of a ten week program, and who at the end would be in charge of making the decision about who would get investment dollars.

The Village Capital programs were tested in four settings, in India, New Orleans, Boulder (as part of the Unreasonable Institute) and in the Bay Area. Between the programs, First Light invested around $900,000 in 12 ventures. The process was so successful that they're growing the number of Village Capital programs over the next couple years.

First Light's partnership with the Hub will create the Hub Village Capital fund. The program will fund three entrepreneur cohorts for 12-week programs, and invest $750,000 in up to ten ventures. Like before, the funding decisions will be made entirely by the participating entrepreneurs. In addition to having a set of space assets to contribute to the project, the Hub has a built in community that it can draw upon both to populate the program and provide community for new ventures. What's more, the Hub is run by the folks behind Good Capital, and I'm sure is thinking about creative additions to the financing platform.

This program literally cannot scale fast enough. I'm glad to see its success and its growth.

To learn more, check out the website. Startups can begin applying next week.

Photo credit: The Hub Bay Area

The last week saw a lot of very cool activity -- specifically a lot of big financial activity. I believe that our field needs more capital more than just about anything else, and while not all of this money (or any of it really) is specifically aimed a "social entrepreneurship" per se, it's all for companies that are showing investors and entrepreneurs how much opportunity there is in solving big social problems.

Troubled Times: When Mark Zuckerberg's Inspiring, Courageous Generosity Is Not Good Enough: This piece perfectly echoes what I wrote about Facebook founder Mark Zuckerberg's $100 million gift to the Newark school district. The media coverage was so despicably cynical and stupid I could barely read it. This gift is one of the least sexy, most driven I've seen -- certainly from someone with wealth so young. We should be pumped. Period.

Omidyar Network Gives $55 Million to Help Government Transparency, Mobile Technology: The Omidyar Network, the joint philanthropy and social venture capital fund started by eBay founder Pierre Omidyar, has been on a tear lately. At the Clinton Global Initiative last week, Omidyar announced a new $55 million fund to fund technology that increases government transparency or uses mobile technology to advance development.

Sequoia-Backed Think Finance Gets A $90 Million Credit Line To Help Serve ‘The Unbanked’: Financial literacy (or lack their of), along with student and consumer debt are strangling America. Many of the services provided by traditional financial institutions simply aren't designed for the 60 million or so "unbanked" consumers in America. Think provides services specifically for that group, and just got a big new chunk of capital from Silicon Valley veterans Sequoia.

A Refugee Social Network: There's an App for That: This isn't a story about a big cash injection for a new startup, but it's an idea that, if they get it right, would absolutely deserve it. Refugee services, in general, are deplorable, and create a situation in which refugees are forced to rely on informal networks for support. This new social networking service would be designed to help them connect with and find people they've lost track of and more.

Photo credit: osde8info

Chicago. For people who love it, there's no place like it in the world. For people who've just visited...well, they've still usually had at least one encounter with a great slice of deep dish. Chicago is unquestionably the Midwest's great city. Yet, for all the devotion Chicago commands, its technology and startup scene are less developed than would seem to befit a city of its stature.

All that may be changing, however. This year, the city got its own TechStars/Y Combinator-style incubator in Excelerate, which was started by the founders of sites like OKCupid.com. In about a week, Chicago will also play host to a major conference for startups and investors in the Midwest called midVentures Launch.

To build excitement and knowledge around the conference, midVentures is also hosting a blog discussion about what it would take for Chicago to become a technology hub. As someone who spent 7 years there going to school and building social enterprises, only to leave to come to San Francisco to start my web business, this is something I've thought about:

1. Sell Aspiration: While Chicago may not be Silicon Valley just yet, it's recent crop of startups have some pretty big names. Groupon, which is arguably the hottest startup in the world, is based an Chicago and was started by a Northwestern alum. 37Signals are undisputed thought leaders in the modern startup era. Every high school and college student in Chicagoland should know them.

2. Internship Programs for Local University CS kids: One of the biggest deficits in the Chicago startup scene is just a lack of knowledge about what the field actually looks like. There are lots of promising computer science folks at universities like Northwestern and UChicago, but the internships they get in the summers between classes are rarely with local startup companies. This is a missed learning opportunity.

3. Aggressive career recruiting for those same students when they graduate: Perhaps even more important than the above, the biggest loss for the Chicago startup scene is the braindrain that happens every time a class of CS majors graduates and gets safe jobs as analysts and programmers at Wells Fargo. In my opinion, the best thing that anyone who cares about the Chicago scene could do would be to fundamentally disrupt this talent syphon and show students a different path.

4. Solving different problems than the Valley: Chicago startups are potentially better positioned to address certain types of problems than are startups in Silicon Valley. Whereas, in the Valley, technology and innovation are the real world, in Chicago, the local reality is much more driven by the cares and concerns of average people. There is a big opportunity to learn from customers who better match the profile of most of the world. Chicago also has a unique history when it comes to addressing issues of civic participation, education, health, poverty, urban violence, and more. I wouldn't be surprised to see tech startups that attack some of these types of problems.

5. Increasing the two-way flow with the Valley: Ultimately, the reason to build innovation hubs outside Silicon Valley is not to portent it's decline, but to help others rise. The trajectory is more startups from more places needing less capital. In my mind, that means the potential for more job creation, more startups focused on problems that really matter to people. But new hubs benefit from the accumulated wisdom (not to mention capital) of places that have been doing startups for longer, and creating a pathway that can send Chicago talent to the Valley and then bring it home would be invaluable.

Will Chicago become an innovation hub over night? Of course not. But then again, with things moving as fast as they are, it might not take too long.

Photo credit: terren in Virginia

Silicon Valley is a place invested with incredible myth and aspiration. It is the place of hacker-kids-turned-billionaires. It is a place where last generation's industry Goliath's are upended by the next generation's Davids. The story of the place is particularly important to governments around the world who look to the region as an economic dynamo and seat of innovation. But what does it take to create a 'Silicon Valley?'

This question is actually the subject of a lot of thinking and writing. Startup guru and UC Berkeley professor Steve Blank has given a talk called "Hidden in Plain Sight: The Secret History of Silicon Valley," which takes the story back to WWII. Guy Kawasaki, former Apple evangelist and many-times startup book author wrote a post in 2006 called "How to Kick Silicon Valley's Butt" in which he breaks it into the pieces that other places can replicate and those they can't. Y Combinator founder Paul Graham wrote an essay called "How to Be Silicon Valley" in which he argues that it's all about getting a concentration of the right people in a common spot.

For many, this is more than just an academic exercise. Around the world, countries are dealing with young populations and too few job opportunities -- a toxic mix. In these places, the attempt to create a version of Silicon Valley is not about vanity, but about opportunity.

Over the weekend, entrepreneur, scholar, and TechCrunch writer Vivek Wadhwa wrote a post about Russia's attempt to encourage an ecosystem of venture capital, seed investment and technology entrepreneurship. Wadhwa has been (and remains) skeptical of the push, but in a surprise was invited to see the country's progress first hand. In reporting back from his trip, he provides 6 steps for creating a Silicon Valley in Russia. While the piece was written specifically with Russia in mind, these tips have application around the world. Here are the points, reinterpreted for the global audience.

The New York Times has been giving startups some serious love lately, from recent Thomas Friedman op-ed's to yesterday's article reporting on new research that suggests that startups are the most important vehicle for job creation in the American economy. The study has important implications for everything from tax policy to education.

In the story of the United States, both entrepreneurship and small business have almost mythic importance. The country was of course, founded by business and civic entrepreneurs who risked everything for the chance at a better life and a better government in a new world. Small businesses have a prominence that derives not only from their economic impact, but for the fact that they seem to be the place where Americans can claim the freedom and independence promised in the American Dream.

But this mythology matters beyond its inspiration for the masses. Policymakers are charged with creating regulatory frameworks that lead to more businesses and more job creation. Put another way, they're tasked with understanding where myth meets reality and designing policy structures that enable more economic growth. People who advocate for policies friendly to small business are quick to point out that 2/3 of new jobs are created by firms with under 500 employees.

In August, the National Bureau of Economic Research published a research paper that made some important suggestions about where new jobs really come from. In short, the report suggests that the size of companies does not matter when it comes to job creation -- what matters is age. The research suggests that most job creation occurs in the early years of new companies.

Why does this matter? It matters from a policy perspective because the things that establishes small businesses care about are often different than the things that startups care about. Creating policies and structures that enable ecosystems which promote entrepreneurship and new venture creation is a task wholly distinct from supporting small business.

The article mentions a few examples of where government policy aimed at promoting job creation through small businesses don't help startups very much. Programs to spur bank lending, for example, don't matter terribly to startups who are primarily financed through equity investment (which effectively means selling a portion of their company, rather than incurring debt). Another example is the focus on individual income taxes -- something the small business sector in general cares a lot about, but which your average startup and its early employees care far less about. Instead, startup ecosystems are worried about things like a rise in capital gains tax, which could reduce incentives for early stage investors.

Mythology matters. The stories we tell about ourselves and our society create the aspiration that catalyzes new careers and companies. But data matters as well. And when it comes to policy, data matters even more. The government should not turn its back from policies which help small businesses, but this data also suggests that it shouldn't assume that those policies are the vehicle which will create the jobs of the future.

Photo credit: star5112

September is the month that business, school, and real-life kicks into gear for many who had enjoyed the last gasp of August summer. Important articles this week range from the education access funding to the problem of regulatory frameworks for startup growth to the comparative generosity of global citizens.

The Most Generous Countries on Earth: The Gallup World Giving Index recently released data about the most giving countries. The USA comes in at number 5. The criteria used by Gallup includes charitable giving, time spent volunteering, and willingness to help strangers. It's hard to draw too much from the limited amount of info here, but it is interesting nonetheless.

Making the Grade: This Matthew Bishop piece in The Economist discusses how loans for education may be the next version of microfinance to make it big. He discusses up-and-coming organizations like Enzi -- who are experimenting with loans correlated to a percentage of future income -- and Vitanna, as well as pondering the potential of Kiva's entry into the student loan market. Watch this space in the coming months.

Startup Visa Interviews at O'Reilly Gov 2.0: This speech and interview combo posted by Brad Feld, a venture capitalist based in Boulder, CO and one of the leaders of the Startup Visa movement, provides great background on the push. In short, the goal is to create a class of visa specifically designed for immigrant entrepreneurs who wish to build their companies and create jobs in the USA.

Schools: The Disaster Movie: I expect that education reform will be one of the most talked about issues in our field over the next year. This is in part due to the fact that the field is so ripe for disruption, and that more and more startups are being created to tackle it. But it is also in part because the filmmaker behind "An Inconvenient Truth" is back with a much-anticipated film about the deplorable state of American schools. Early reports have suggested that Teacher's Unions come out looking pretty bad, which will be sure to poor additional fuel on an already intense flame.

Instead of IPOs, Startups Look to Be Acquired: Tomorrow I will publish a piece about new evidence that suggests that startups are the most important economic engine of job creation in the United States. This piece reinforces the point I make then about how economic policy designed to promote small business and bank reform is not necessarily the same -- in fact can be down right opposite -- for policy needed to allow startups to flourish. This piece shows how both too much and too little regulation has ruined the market for technology IPOs, impacting job creation and the venture industry as a whole.

Photo credit: Schlüsselbein2007

The financial crisis has not, thus far, cast a clear death blow to Milton Friedman's idea that the only responsibility businesses have to society is to maximize profits. That said, the last couple years have seen a steady mainstreaming of "social entrepreneurship," particularly within vertical industry categories such as Fair Trade. I believe both the verticalization and mainstreaming of the field will continue, creating a higher need than ever before to understand just what the broader designation of "social entrepreneurship" has to offer.

Social entrepreneurship tends to refer to the space in which companies and nonprofits use market and business objectives to achieve social aims. While there is some debate about whether the term refers exclusively to one legal business model over another, the core point for most of the people I tend to agree with is that "social ventures" as opposed to regular for-profit entities have an explicit focus on solving some social or environmental problem and maximizing social or environmental good alongside (or sometimes even at the expense of) pure, short-term profit maximization.

In this way, it is different from corporate social responsibility, which at its best is about giving back, improving employee culture and conditions, and reducing environmental impact. The difference is the fact that social entrepreneurship suggests that there is a core social or environmental value created every day by the products or services at the center of the very business. This does not mean that social ventures are "better" than non-social ventures -- there are lots of great companies that simply happen not to focus on solving social problems and which are still wonderful employees, community members, and philanthropists -- but it does mean they are different.

Social entrepreneurship is, however, a slightly weird field, in the sense that it is not an industry, but a term which applies to a number of (sometimes unrelated) industries, and a similar approach to business that places a social or environmental value at the center of the mission. Most people come into contact with the broader field of social entrepreneurship through one of the industries that it touches.

I think there are a few clear examples of  these "vertical" fields that connect with the larger banner of social entrepreneurship that have gotten increasingly mainstream over the last few years. Cleantech is perhaps the most obvious, becoming one of the most invested in areas of venture capital ($1.9 billion was invested in Cleantech companies in the first quarter of 2010 alone). Microfinance is another clear example. The awarding of the Nobel Peace Prize to Grameen Bank founder Muhammed Yunus and the explosive popularity of Kiva are two of the more important historical moments for the prominence of social entrepreneurship, and the recent IPO of SKS could be another. Fair Trade, Organic and Local Food movements are all racing to the mainstream, as well.

Being based in Silicon Valley, I'm particularly interested in industry verticals that can attract tech talent to start new companies. I think we're going to see big booms in education startups (see: Udemy, Enzi, Grockit, DonorsChoose, Supercool School) and I hope that many will learn to work within instead of solely outside the current education system. Healthcare seems like an obvious area that mixes social good with the potential for immense profit, but there are still too few web tech companies working on the issue, a problem that programs like Hacking 4 Health are trying to redress. And although they are a little bit different in terms of their potential for financial gain, there also seems to be a mini wave of "government 2.0" startups (see: Code for America, CitySourced, Gov2.0 Summit) that are trying to change the way municipal services are deployed and how governments interact with citizens.

It makes sense that social entrepreneurship would mature into verticals like this: startups need accumulated bodies of knowledge and connections to be successful, and ultimately, what works in Fair Trade may not work in Education. At the same time, I think the common element of trying to maximize a social or environmental good takes as much managerial discipline as deploying a successful revenue model, and for that, the broader field of social entrepreneurship has much to offer.

Photo credit: Chuck “Caveman” Coker

It's something of a truism that there are too few females in the web startup space, and indeed, in early-stage ventures in general. But if this is commonly accepted as fact, it's only recently that there has been a big push to go out and recruit great women to the field. Today, new San Francisco-based startup incubator i/o ventures announced the first ever WIE Prize for female entrepreneurs.

The prize is offered in partnership with the WIE Network and will be awarded at the WIE Symposium in September. Basically, it will be be investment based on the i/o model: 8% of the company for $25,000, a 4-month incubation period and access to world class mentors and supporters who can help with product, model, and later-stage investment, not to mention a stint at the i/o ventures space in the best neighborhood in San Francisco, the Mission.

The prize came about when i/o noticed how few female entrepreneurs they had applying to their incubator program. Co-founder Paul Bragiel said that the purpose of featuring this spot in their portfolio as a separate prize is to publicize clearly and loudly that, not only is there room for women in the tech space, there is a significant desire to see more women-led companies.

I think that's the right attitude. The goal of any effort like this is ultimately not to end whatever discrimination may exist against women-headed companies (even if that's an intermediary goal), but to make entrepreneurship just as viable for creative, driven women, as it is for men. We want to be recruiting the best people to create the disruptive companies of the future, period.

The general attitude in Silicon Valley about the ability of government to get things done is that, well, it doesn't have the ability to get things done. Ironically, the slow drift towards an evisceration of internet freedom by  internet service providers (ISPs) and their lobbyists -- a drift that most of Silicon Valley is diametrically opposed to -- has been significantly enabled by that prevailing dismissive attitude.

It's not hard to understand why, as a general rule, Silicon Valley would harbor many folks skeptical of Washington. In the web space, steam-rolling builders shape the world in their image (or at least, that's the story that gets told). The nobodies of one day build companies that disrupt historic industries the next. The pace of change is so dramatic and addictive, it's hard to be satisfied at the glacial pace of change that characterizes policy debates.

What many in the Valley forget, however, is that their ability to disrupt industries has had as much to do with historical accident as it has with their own much-vaunted entrepreneurialism.

Net Neutrality is fundamentally about keeping the internet an equal playing field in which all types of content have the same chance to be seen and experienced. Historically speaking, the internet has happened to be a place in which certain types of content are not discriminated against, slowed down, or limited by service providers because of a combination of disincentives and regulatory threat. That has meant that big players have not colluded to cut off the life stream of little players, and it has enabled the disruptive power that looms so large in our mythology.

But there is nothing other than the moral suasion of Net Neutrality advocates and the assertion of regulatory power on the part of the FCC that guarantees that any of that remains the case. Indeed, the Net Neutrality conversation is heating up because the economic advantages of creating tiered service in which certain content creators pay to prioritize their services against others are becoming clearer and clearer, exemplified by the fierce and growing battle for mobile affiliation and the increasing bandwidth burden on service providers as more people get on faster landline and wireless connections.

Put another way, the self-policing that so many in Silicon Valley wish to believe works perfectly fine is beginning to rub up against the fact that when startups grow into great big companies, they throw their power around to preserve and grow their piece of the pie, even (or in some cases, especially) if this means strangling the competition before it becomes competitive. Of course, this is anathema to the startups and venture investors whose business is rooted in big wins and disruptive power. The question is who has the power to preserve the balance?

In democratic societies, the answer to that question is: the government. Businesses and nonprofits do not have the power to determine personal or commercial rights and regulations. They can shape norms, but their ability to do so is a soft, not a hard power. The job of government is to codify norms that best benefit large parts of society into rules that create serious disincentives or outright blocks to business approaches that would undermine those norms.

The government's power to assert this influence, however, is entirely determined by how much authority they're given by citizens and key influencers in society. When entire influential groups of people (ahem, the Valley) talk as though government exists only to bother them, it influences how they (and how others watching) behave, and that behavior influences the actual ability of government to be powerful.

This self-fulfilling prophecy is being enacted in the Federal Communication Commission's seeming inability to stem the tide against the forces looking to dismantle Net Neutrality. While some of that is due to the particular decisions and shortcomings of FCC leadership and the weak federal support of their mission, it is also directly related to our hostility toward government in general.

We can't crap all over the idea of government when it doesn't particular matter to us, or when it's creating regulations that are economically disadvantageous to us, and then expect it to have full power to be there to regulate the norms we think are important when they become threatened by people who disagree with us.

This is a delicate line. Certainly this administration and our governing structures in general deserve skepticism, and often frustration.

But if we wish, in those times when we find ourselves on the same side of and needing the unique legislative and regulatory power bestowed upon government, we must assume that government also deserves our engagement, advocacy, and ultimately, our recognition of its importance in maintaining a just, fair, and free society.

Photo credit: David Paul Ohmer

I've spent the last few days in Boulder immersed in the world of the Unreasonable Institute. As I've been listening to some promising social ventures give their pitches, there have been a number of great articles about the changing nature of the venture space, innovation in global mobile money, some good news about conflict minerals, and more.

Obama Signs Legislation to Label Conflict Minerals: There is a growing awareness of the fact that many of our modern electronics include minerals mined in places like the Democratic Republic of the Congo. New legislation passed recently means that companies are now obligated to provide information about whether they're using parts derived from minerals that come from these places, and if so, what they're doing to ensure that they obtained legal and with regard to human rights.

A Mobile Payment Trifecta in Kenya: Erik Hersman is one of the leading voices in the story of Africa's mobile tech renaissance. In this piece , Hersman talks about three mobile payment companies showing how Kenya is actually arguably getting out ahead of many startups coming out of America and Europe that are working on these high-potential areas.

Idiocy and brilliance of American policy toward entrepreneurs: A nice simple piece about the irony of our immigration policy by tech blogger Robert Scoble. He points out how, on the one hand, the US creates a space safe for failure -- the necessary prerequisite for an entrepreneurial culture. Yet on the other, we make it immensely hard for talented people from around the world to settle and work here.

Why Every Social Entrepreneur Should Be Paying Attention to SKS & Unitus: I haven't spent as much time with the Unitus shut down and the SKS (microfinance) IPO as I should, in large part because I'm still wrapping my head around what I think they mean. This post does a nice job connecting many of the dots, however, and links to a follow up, as well.

Are Most VCs Dinosaurs Who Need to Hurry Up and Die?: The venture capital space is in the midst of a rationalization period, in which the model is trying to adjust to the reality that startups are starting for less, and exiting earlier through buyouts. This week, leading angel investor Dave McClure launched his own seed fund "500 Startups," and launched a shot across the bow of the traditional VCs. This post looks at both sides.

Photo credit: Scott Kinmartin