Is this the year of “Winners Take All”?
Village Capital’s 2018 in review
If you had to sum up the dominant narrative of this head-spinning year in one phrase, “Winners take all” may just be it.
From Anand Giridharadas’ criticisms of “change agents” in his book “Winners Take All”, to economists’ warnings about “winner-take-all urbanism”, people are rightfully challenging power structures that allow the already-powerful to make decisions about our collective future.
The good news: it’s working. From our vantage point in the world of entrepreneurship, venture capital and impact investing — working this year with more than 250 entrepreneurs on six continents (read more about our investments here) — we’re seeing trends that are moving away from the winner-take-all mentality and toward the democratization of power, resources and innovation.
At Village Capital we’ve always been focused on how to empower more people from more places to come up with the solutions to society’s most pressing problems, from economic opportunity to climate change… and from what we’re seeing, we’re optimistic that the broader market is beginning to realize that status quo is not good enough. Here are a few trends that we’ve seen emerge in the last twelve months (scroll down below the graphic):
Early-stage investing is evolving to become more inclusive
In venture capital, the hunt for “unicorns” has long been a manifestation of the winner-take-all mentality. Many traditional VC investors build their portfolio around the idea that a majority of their investments will fail, while one or two home runs will deliver a huge return. This means that every company selected must be, in the eyes of the investor, capable of a 10x or 100x return. But we know that the great majority of excellent businesses will never achieve hockey-stick-style returns. In practice, this exponential-growth-or-bust approach means that most promising entrepreneurs and businesses which have great potential to create jobs and economic opportunity are left on the sidelines.
That’s starting to change. There’s an increasingly loud chorus of investors focusing on another type of business — businesses that that Bryce Roberts of Indie.vc says fall in the “gap that sits squarely between lifestyle businesses and monopolies in the making.” And there’s an emerging practice for financing these businesses with more appropriate — and more inclusive — types of capital, thanks to leaders from organizations like Adobe Capital, Candide Group, RevUp Capital, Transform Finance. We explore a few of these ideas in our recent report, Capital Evolving.
“Rise of the Rest” communities are investing in local innovation
The divide continues to grow between the world’s “Superstar Cities” and the rest — what Richard Florida calls “winner-take-all urbanism”. This year’s Amazon HQ2 sweepstakes, which ended with the company choosing two of the wealthiest metro areas in the US, drew attention to this gap and to just how heavily our economic development systems still rely on coaxing big incumbent companies across borders in the name of “job creation” and golden-shovel ceremonies. Remarkably this is still the case even though the Kauffman Foundation and many others have shown that nearly all new net job creation comes from supporting homegrown entrepreneurs.
That’s starting to change, thanks to a few developments this year. The creation of federal Opportunity Zones has ignited massive interest in place-based investing, by providing a tax incentive for investors who put capital into economically distressed areas in cities, towns and rural areas (Our founder, Ross Baird, is one of the people leading the charge). We’re also seeing more tools for entrepreneurs to connect with local capital — in our backyard, Virginia for Entrepreneurs uses Village Capital’s VIRAL tool to connect founders and backers.
In emerging markets, leaders of “tech hubs” continue to evolve and share best practices on how to support entrepreneurs. This year we ran a train-the-trainers program called VilCap Communities Africa, which brought together incubators, accelerators and seed funds from 18 African countries to share what’s working.
Investors are paying more attention to the value of lived experience
It takes roughly $30,000 to start a business. Most Americans don’t have access to friends and family with that kind of money. As a result, the entrepreneurs who make it tend to come from wealthy privileged backgrounds and/or are connected to elite networks through a small number of schools or zip codes. They’re also rarely women, or entrepreneurs of color — Raj Chetty has done powerful research on the world’s “Lost Einsteins”.
That’s starting to change, too — albeit way too slowly. The numbers are still abysmal when it comes to female-founded ventures, and even more so for entrepreneurs of color, and I’ve admittedly grown a bit exhausted of repeating those figures (and sitting on panels about “the business case for diversity”). Even so, we’re seeing a flurry of new initiatives working to open up networks and build social capital”for diverse entrepreneurs — including our own VC Pathways program — and several new funds that are focused on investing in women and people of color (Impact America Fund, Backstage Capital, and Pivotal Ventures, to name a few).
All of these trends — more inclusive capital structures, stronger local ecosystems, and empowered entrepreneurs — are ultimately a means to a greater end. Any new innovation can move the world in the direction of “winner take all”, or toward democratization of wealth and resources. When the same old people are solving our biggest problems, we end up seeing the same old solutions (read Farhad Manjoo on tech’s “monoculture of thought”). But if we can democratize entrepreneurship, then we’ll also diversify the types of businesses and solutions that are being created — which means solutions that work for more people.
If you’re looking for some reading over the holidays, you can read about some of those solutions in Village Capital’s recent reports:
- Health Care: America is aging quickly: we’re about to have more senior citizens than at any time in history, and they’re approaching retirement age in the worst financial shape in decades. Read how entrepreneurs are rethinking healthcare for an aging population.
- Clean Energy: In 2018 transportation became the single biggest source of carbon dioxide emissions. More children now get asthma from cars, trucks and planes than from power plants. Read how entrepreneurs are creating cleaner, greener ways to travel and move things.
- Financial Inclusion: Hundreds of millions of people in Africa lack access to basic financial services. Read how entrepreneurs are helping families save for retirement and smallholder farmers borrow money.
- Automation for Good: Automation and artificial intelligence will displace millions of jobs; but these technologies can also be harnessed as a positive for workers. Read how entrepreneurs are using automation to prepare workers for the jobs of the future.
Wishing you a season of reflection and rest before we all get back into the fight to continue this important work. We’re grateful for your partnership, but there is so much more to be done. Onward to 2019!
Allie Burns is Managing Director of Village Capital. Read more on vilcap.com/blog.
