A New Impact Investing Ally in Europe
Ben, tell us a bit about your background! How did you start your career in impact investing?
I came to impact investing after a non-traditional career path that led me through sustainable tourism, education, a stint as a documentary filmmaker, and finally, working inside traditional development organizations. During the first phase of my work (mostly in Latin America and China), I witnessed a number of front line challenges that communities in emerging markets faced, but I wasn’t satisfied with the solutions I was seeing — mainly the traditional, donor driven approaches that most large scale development organizations took when trying to solve critical, real world problems. The organizations I was working with had the best of intentions at heart, but there was (often) an enormous disconnect and lack of alignment between the development organization and the communities they were trying to serve, not to mention unstable funding cycles and changing government/organizational agendas.
I wanted to work more closely with individuals that had lived experience with the problems they were trying to solve, and who had a sustainable, economic model built into their solution. I was drawn to impact investing when I learned about it in grad school, and started working with mission driven startups after getting my business degree. After two years of working on the startup side in Colombia and the U.S., I decided to join Village Capital to better understand how money is actually doled out, and help more equitably distribute funds and support to scalable, impact-driven, and investible ventures solving real-world challenges.
Can you tell us about Village Capital’s approach to impact investing? In what ways are you different from other impact investors?
We see entrepreneurship as a critical tool for solving some of the world’s biggest problems, but the power dynamic is unbalanced, and right now, just a handful of people in a handful of cities are deciding which entrepreneurs get a chance to succeed — less than 15% of global VC goes to female founders, less than 2% of venture capital in the US goes to Black/Latinx founders, and more than 50% of global VC goes to three US states: NY, MA and CA. This means that a lot of impactful solutions are not getting the support and resources they need to scale, and what’s even more troubling is that these statistics haven’t changed much in the last five years I’ve been working at Village Capital.
We’ve been trying to change this — since 2009 our team has directly worked with more than 1,100 entrepreneurs in 28 countries, and our affiliated fund — VilCap Investments — has invested in 110 startups that have gone on to raise more than $500 million in follow-on capital.
Our fund is more inclusive than traditional funds, with a portfolio of companies that is:
- 30% founded by black or Latinx entrepreneurs (in the U.S)
- 50% female founded companies
- 80% of our investments are based outside of the traditional investment hubs mentioned above (NY, MA and CA)
On a fundamental level, we’re interested in systems-level change that makes impact investing more inclusive and empowers a wider range of entrepreneurs — one way we’ve tried to get there is by a unique model we’ve been using since 2009 that uses a peer-selected investment process to democratize how investments are made and has been proven to mitigate bias for female founders. Since then we’ve been designing, testing and sharing new tools, technology and processes to drive capital to a broader set of entrepreneurs, including our investment matchmaking platform Abaca, VilCap Communities and alternative capital strategies that include a newly launched fund of funds.
Also, we have a pretty global footprint with team members around the world building and adapting our tools for local implementation, with offices in Washington DC, Mexico City, London, Nairobi and Bangalore. We focus on innovations that reduce global inequality and improve people’s ability to live healthy and productive lives, with a specific focus on three thematic areas: Financial Health, Sustainability and the Future of Work.
What are you currently working on?
A couple of different things:
One, we know there is a limit to how many entrepreneurs you can directly support through in-person acceleration programs, so we’re trying to digitize our trainings and tools so we can scale our support from 1,100 to 110,000 entrepreneurs in the next ten years — this was greatly accelerated by the pandemic lockdowns and last year we ran over 20 virtual programs.
Two, mission driven startups need more access to the right type of capital for their growth, so we’ve created an investment matchmaking platform — Abaca.app — to help them navigate the fundraising process, and crowd in more interested investors that are focused on their geography, sector, and stage.
Three, while we’ve been running programs in Europe since 2016, we’ve never had an established team based in Europe to address the unique challenges and opportunities the region offers. I’m excited that in the end of 2020, we decided to formally build out our presence in the region and now have team members based in the UK, Spain, and Italy, and are on track to support over 50 startups across the region this year.
How do you see the evolution of the impact ecosystem in Europe? What are the most important trends and opportunities?
The European impact ecosystem (or impact economy) is fascinating to me and has so much potential to continue to grow and develop. It’s the second most capitalized market in the world, has the most active network of early stage investors, and the community is much more socially driven than some of the other markets I’ve worked in. With the passage of the Global Data Protection Regulation (GDPR) and PSD2 which created a space for open banking and financial data sharing, it is the global leader in the data compliance, regulation and privacy space, a trend that will contribute enormously to tracking progress towards the UN Sustainable Development Goals (SDGs), and will most likely provide the framework for other regions to adopt — Africa has already started modeling some regulations after the GDPR and I believe the US will follow suit in a few years. The passage of the New Green Deal opens up massive opportunities and capital to focus on sustainability and climate change solutions and you can already see great organizations, funds, and startups making progress in that space. It also has great talent across the region and incredibly innovative ventures that are solving really challenging problems, and whose solutions can be applied both regionally and globally.
It also has its challenges — the impact ecosystem in Europe is both very robust and very fragmented or siloed as a whole, with incredibly strong network nodes across Europe (Amsterdam, London, Berlin, Paris, Lisbon, the Nordics in general), but they don’t always communicate and collaborate with each other. Much of Central, Eastern, and Southern Europe is underfunded in terms of startup investment despite an incredible tech talent pool. Solely female founded teams received a paltry 2.3% of total investment across Europe in 2020 (up from 1% in 2019). There are real challenges with the changing workforce (Future of Work space to be jargony) and balancing traditional benefits within the gig economy, and how this relates to the financial health of the population. There are some really big challenges for the existing and growing migrant and refugee population in Europe around work and access to capital that is both politically sensitive as well as being steeped in bureaucracy. On the upside, I’ve seen a growing number of startups, foundations, and corporates starting to rally around some of these challenges, and I think with the right funding, framework, and support network, entrepreneurs are ready to take advantage of these opportunities.
What is the main difference you see between the impact investing market in the US and in Europe?
I’m still trying to get my head around how Europeans define ‘impact investing’ — I think the term means different things to different people — a challenge that is not unique to Europe, but a struggle to define in any market. Across the region (and I’m very open to being corrected on this), the term seems to be associated with ‘philanthropy plus’, basically an opportunity for philanthropic giving to drive social change that might yield some marginal monetary return, but is more of a social contribution vs. real venture capital. In the US, most impact funds are working on providing market based returns to their Limited Partners (LPs that provide the capital), and have developed an investment thesis that highlights the opportunities in investing in underrepresented founders and sectors as a strength, not a weakness.
Please, tell us a bit about your strategy in Europe. Which cities or regions do you plan to focus on? What do you find the most challenging about the region? And when can impact entrepreneurs start reaching out to you from Europe?
The opportunities are enormous, and In the next two years, we’d really like to grow (and establish) our presence in Europe and position ourselves as an ally to the people and organizations that have been working on these issues for years — learning from folks that understand the local context much more deeply than we do and adapting our tools to fit the needs and opportunities. I think we have a lot to offer the community — over the last ten years, we’ve been working on (and testing and refining) a number of trainings, curriculum and tools that help entrepreneurs navigate the capital raising process that work from Mexico City to New York to Bishkek, but all need some nuanced adaptation and we’re looking for partners to help us with that process.
I believe there are hundreds of motivated investors and organizations across Europe that want to be more engaged in impact investing — both regionally and globally — but might not have the visibility, bandwidth, or familiarity with the concept to properly deploy capital or support to great solutions, and we’d like to build that more transparent and equitable system.
Ideally, we’d like to act as a convening presence around issues we care about globally — financial health, future of work, sustainability for people and planet, supporting diverse founders — and create local networks to support entrepreneurs, investors and organizations that have a shared interest in working on those issues.
Regionally, we’re looking at starting out in some of the more developed ecosystems in Western Europe — notably the Netherlands (Amsterdam and the Hauge), Germany (Berlin), and in the UK, but I think Central, Eastern, and Southern Europe have a lot of potential for growth in the space, and face some of the more serious challenges that entrepreneurship can address. We’ve already run programs in Kiev and Warsaw, and I’m excited to see more nascent ecosystems like Estonia and Lithuania are working with the government to build great incentives for entrepreneurship and lower barriers for launching companies and investing capital.
In terms of developing the capital market, I think it would be really exciting to get more traditional philanthropic organizations involved in the impact space, and engage with more traditional investors that are trying to diversify their portfolio to give them visibility on what’s out there. A number of family funds are transitioning control of their fund to the next generation, and it would be thrilling to see how impact investing might be an investment angle they could pursue.
Finally, entrepreneurs can reach out ANY TIME — we’re currently looking for companies to join our IBM HyperProtect 2021 program that are leveraging data to increase access to essential services like financial inclusion and healthcare services, we’re exploring opportunities to support underrepresented founders (gender, racial, ethnic, and geographic) across the continent, and are looking for partners (like you all at Impact Shakers) that can help us better understand and navigate a very complex ecosystem with enormous potential. Thank you so much for including me in this showcase, and very much looking forward to what we can develop together!
Ben is one of the judges in the Impact Shakers Awards.
With the Impact Shakers Awards, our goal is to celebrate the impact ecosystem, to showcase businesses working on societal challenges and to amplify the voice of underrepresented founders. We firmly believe entrepreneurs with a migration background are some of the most resilient entrepreneurs and we encourage you, who is reading this article now, to apply with your solution!
Apply for the inaugural Impact Shakers Awards as an impact business or forward this call to someone whom you think fits the profile and should be recognised.
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