Venture capital by education
Banker Africa spoke with Adedana Ashebir, Regional Manager, Africa, Village Capital about her firm’s unique approach to venture capital
How is Village Capital different from other venture capital firms?
Village Capital is a venture capital firm with its headquarters in Washington D.C., and offices in San Francisco along with three emerging market offices in Latin America, in Mexico City, Africa, out of Nairobi and India.
We have five sectors of focus— agriculture, fintech, education, healthcare and clean energy. What differentiates us that is unique among other VC firms, is that we run sector specific investment workshops. For instance, we will open applications for the Africa programme and collect anywhere between 100 and 200 applications from which we select 10 to 12 of the most promising entrepreneurs and we put them through our curriculum.
The curriculum is called Venture Investment Readiness Awareness Levels, VIRAL for short, and aims at helping entrepreneurs help their business to prepare for investment. At the conclusion of our workshop, the entrepreneurs themselves act as the investment committee and select which two ventures among them should receive our funding.
We do this in part because we are trying to remove investor bias. We find that this is a common thread throughout emerging markets venture capital. VCs [venture capitalists] that are working in emerging markets tend to conflate pattern for potential for instance, this person went to my school, or this person is from my country. Instead we find that entrepreneurs that are building these businesses in these markets are much better judges of the challenges and operating constraints and that feedback is really vital to us.
How has this approach been successful in comparison to the traditional VC approach?
We are definitely perfecting it over time, our curriculum has changed over time and we don’t have any exits as yet, but we are confident in the future of our portfolio, and we are looking forward to seeing how it progresses. In terms of variety and the founders and where they are from, we’re pleased with the make-up as well, 35 per cent of the global portfolio is either founded or co-founded by women.
This is particularly salient due to two facts which emerged from our fintech report, Breaking the Pattern: Getting Digital Financial Services Entrepreneurs to scale in India and East Africa. We found that 72 per cent of all disclosed VC funding in east Africa in last two years went to only three companies, Angaza, Off Grid Electric and M-Kopa, and then the remainder of that VC funding was split between 57 companies. Additionally, start-ups that have at least one foreign or non-African co-founder or founder received 90 per cent of funding that goes into East Africa, and these are the things that we are trying to address It’s not to say that those three organisations where not deserving, they were deserving, and it’s not to say that start-ups that have at least one foreign or non-African founder are underserving, it’s more that in the latter case these start-ups have access to more networks, more access to capital and that it’s a lot easier to make those connections than if you are a founder that isn’t diaspora and is building something, so that’s what we are trying to address with our work.
How do we create more investment for start-ups in general across the continent?
I think it takes time and it takes a lot of effort. Our previous model [before setting up an office in Nairobi] was of flying in and doing pitch competitions, but that doesn’t work and also pitch competitions are partially weighted towards a particular type of entrepreneur who has that comfort level to get up in front of an audience and say something for 30 seconds, and with this is with plenty of places on the continent where English is not the first language. So, I think it takes a concerted effort in terms of pipeline partners and in terms of networks.
I also think getting the diaspora involved is important. This is one trend that I have noticed increasingly. There are those first and second-generation people that have emigrated out of Africa who are looking back to the place where they came from, or their parents came from, and they’re looking to make an impact, they have some disposable income and are thinking about investments and where to put their money. Including the diaspora as well will be key because they already have networks with folks, whether it be in terms of university or cousins or people who are building things, whatever the case may be.
Has Village Capital seen any input from the diaspora groups?
The West African diaspora network in particular is quite robust, especially in Nigeria and Lagos. In our last workshop, which was fintech in last year I believe, we had two investments on the day made by angel investors. I’ve also had some conversations with Kenyans who are looking to make investments and are looking for vehicles, but I would say that West Africa is a bit further ahead in terms of that trend, although this is not to say that there isn’t interest in the various other regions as well.
What does the future hold?
We are currently exploring a venture debt fund because we find that many entrepreneurs are they are struggling to get well structured, well-priced debt and so that’s something that we are considering so I want to put a call out for anybody who is also looking at doing this and please reach out and see how we could potentially collaborate.
In addition, our next programme is fintech and applications will open next month, October, so we will be holding a new fintech cohort looking at financial health, including insurtech, pensions and savings, cooperative finance, financial literacy, or in start-ups that are leveraging data for credit storing, consumer credit scoring, consumer insights, or introducing payments into other mobile services including social media or online commerce or more applied fintech. In part this is stepping away from the payment and remittance conversation which has gotten a lot of attention but looking at fintech that is supplied to our other sectors of interest, so agtech, energy fintech, education fintech and health fintech.