How do we reimagine how we invest? The whole point of a founder raising funds for his/her social enterprise is to scale it over time and create more impact. However, founders often go through 3-9 months of pain to raise money - diverting crucial time away from operations - time that they could use to impact more lives. Reimagining impact investing means providing founders with crucial funding at the right time without diverting too much energy or time away from running and growing their business. Funding that founders know will come when needed so that they can plan far ahead and put long-term plans into motion. This means overcoming the two hurdles of matching parties and information asymmetry. It does not mean a haphazard approach towards investing, but rather a different approach which actually increases the accuracy of current due diligence while lowering its costs (in terms of time and money).
Village Capital comes close with a solution to this - democratizing the way we invest and using peer selection to increase the accuracy of funding and lowering the cost and time of due diligence. However, this process is noticeably restricted to accelerators because of the longer period of time accelerators have to curate this process within a rather closed environment. This gives social entrepreneurs the opportunity to know each other (as fellow entrepreneurs first) over a period of time, leading to them being able to make better decisions. The problem here comes when trying to scale this model up to the larger funding of social enterprises and how we can fund them at scale using a similar methodology. To do this, we have to break down their success into various parts:
1. Use of a distributed method of making decisions helps eliminate individual bias
2. Use of fellow entrepreneurs’/practitioners’ perspective in the value process as they are closer to the ground and know each other as fellow entrepreneurs first (different kind of relationship)
3. Leverages on the time entrepreneurs had to interact with each other over months as an indicator in making investment decisions (something we strongly believe in).
Solving this problem at scale using lessons learnt from Village Capital leads to the following questions:
1. How can we create a model that incorporates these lessons and implement it at scale, without having to create a costly program to do so? (while keeping the benefits of lower costs of due diligence and higher accuracy)
2. Is a distributed approach the only method? Methods like the ones used by Village Capital and Giving Circles might be relatively cheaper compared to the more traditional approach, but these are still expensive processes or at least processes that rely on some form of in-kind donation like the time of many people.
3. How can we reap the benefits of centralisation of certain features such as fund raising, tech platforms, and standardisation of due diligence processes?
Givfunds extensively incorporates perspectives from social enterprise aggregator partners in our due diligence process. However, one of our mentors rightly pointed out that these aggregators (despite knowing and working with the social enterprise for years in some cases), are still far away from the problem the impact enterprises are trying to solve and keeps the founders in a dependency mindset.
Join us as we at Givfunds stumble, fail and try again in our journey to reimagine impact investing for a better future.