There’s need for new categories of alternative investments: Deepak Menon, Village Capital
When it comes to investment our priority is also to deploy a more effective and inclusive way to make bets on big ideas. That’s why Village Capital’s affiliated fund VilCap Investments makes investments through a process called “peer selected inve...
What has been your experience of investing in India? How different is the startup environment in India compared to other countries you invest in?
Since 2009, Village Capital has run 15 investment readiness-focused accelerators in India for early stage ventures in financial services, agriculture, education, energy, health and civic tech.
Our affiliated fund, VilCap Investments, currently includes 14 Indian alumni of these programs in its portfolio. One example is Loans4SME, a platform for small businesses to raise debt capital that has contributed $35 million of working capital to more than 70 businesses.
Overall, VilCap Investments’ portfolio includes 100 Village Capital program graduates worldwide and over 1,000 entrepreneurs have passed through the programs.
India has been a region of focus for us since 2010. The venture ecosystem in India is fairly robust, including investors, corporates, accelerators, even traditionally non-profit-oriented foundations that are looking to support sustainable, impact-focused ventures. Within the investor community as well, there’s an increasing angel investor presence, many of these successful entrepreneurs in their own right, who understand the journey and bring with them insights & resources beyond financial capital, this is, networks, business & product support etc.
What are your priorities as far as startup investments are concerned?
I will break our priorities down into those that apply at the stage when we select program participants and our priorities at investment stage.
Village Capital sources and selects the entrepreneurs that go into accelerator programs with the help of its partners and a local advisory board for each program. In India, the advisory board for our current program Finance Forward includes Indian representatives from Grameen Capital, ICICI Bank, The Bill & Melinda Gates Foundation and Yunus Social Business, among others.
Our priorities are startups that are post-revenue but pre-Series A (although we sometimes consider pre-revenue if there is clear potential to scale); have potential to scale internationally; and are solving a hard social problem that relates to the “thesis” of the program.
Importantly, wherever we are running a program we also work towards bringing in entrepreneurs from diverse backgrounds, mitigating typical market bias against them on the basis of gender, class, socioeconomic background and academic pedigree.
When it comes to investment our priority is also to deploy a more effective and inclusive way to make bets on big ideas. That’s why Village Capital’s affiliated fund VilCap Investments makes investments through a process called “peer selected investment.” This process flips the power dynamics of traditional VC by letting the entrepreneurs in each of our accelerators collectively decide amongst themselves who should receive funding.
You have already invested in more than 10 ventures in India and made a few exits. How have the India bets been in terms of returns?
As an early-stage investor, we are working with companies that are still growing, and in many cases are only a few years old. We are encouraged by the progress of companies like SatSure and Finwego. Satsure is bringing in decision intelligence mechanisms in the agriculture, disaster management, and BFSI sector through its big data analytics solutions: 395,200 farmers have benefited from its “fast insurance claim settlement” product.
Finwego contributes to financial health of schools and school teachers in Tier-II & III cities through its lending products. It has reached 20,000 teachers since June 2019.
What's your plan for 2020?
Finance Forward remains a huge global undertaking into next year, we have plans to run programs with prominent partners in a number of other sectors and local entrepreneur support organisations will likely feature more prominently in the delivery of programs. Working more closely with the latter means boosting local entrepreneurial ecosystems to provide sustained support to our program alumni and the community at large.
Village Capital remains committed to developing ways to fund ventures that are more appropriate to their requirements. There is both a need and an opportunity to create new categories of alternative investment. Given how the existing system is inaccessible for so many entrepreneurs – and in turn so limiting for investors – thinking more creatively about investment strategies can not only help improve portfolio performance, it can also help generate jobs, expand businesses, and support our economies.
According to Tracxn there are more than 1,000 fintech startups in India. Is there room for all? What's the opportunity you see in fintech in India?
There is a paradox in India. On the one hand India’s fintech sector is booming: Indian fintech startups raised a record $2.3 billion in equity funding in 2018, whilst Government services like the Unified Payments Interface (UPI) have made online transactions easier.
On the other, hundreds of millions of Indians are operating in the informal economy. For instance, nearly 40% of lending to small business is still done through informal channels, and almost half of India’s bank accounts are inactive.
There is a clear, ongoing need and opportunity for services that small businesses and households find relevant and that optimise their financial health.
Fortunately, many Indian entrepreneurs have a close knowledge of the challenges faced by underserved businesses and households, plus a keen interest in opening up huge new markets.
However, they are often overlooked by mainstream investors who do not properly appreciate the opportunity. Also a key problem is that the entrepreneurs do not speak the same language as investors.
Finance Forward, our program in partnership with PayPal and MetLife Foundation, fills this gap. It combines Indian and global expertise to help these entrepreneurs become investment-ready and forge connections with investors, in addition to improving their product and helping them overcome legal or regulatory barriers.
Village Capital has shifted focus from financial inclusion to financial health. Why so?
Finance Forward, our latest program that we are rolling out worldwide, is designed to capitalise on the progress towards financial inclusion made by bodies such as the World Bank and governments, for example the UPI.
The program’s core premise is that people may be technically included, but they need a raft of appropriate services to incentivise them to even engage and in so doing improve their financial health.
Finance Forward’s cohort of twelve early stage ventures in India are united in their commitment to improving financial health for those underserved by digital technology. They are for example building creative and affordable solutions to help individuals and small business owners access affordable financial services, manage their income and expenses and protect themselves from financial shocks.
This is another way of saying that if financial inclusion is the means, then financial health must be the end.
In total, Finance Forward aims to improve the financial health of 700,000 low-income people and 10,000 micro and small businesses owners in India, Latin America, the USA, Europe and the Middle East.