Why an Accelerator for Venture Capital?
After launching our first venture fund in India in 2012, my partner Dave and I wanted to find a model to extend our early-stage impact investing globally. We knew from decades of combined experience about the challenges of investing at the seed stage. We also knew of the imperative to have empowered and capable teams on the ground. So we started reaching out to people interested in addressing the “global missing middle” – the lack of funding and expertise needed to help aspiring entrepreneurs prepare to scale.
Advice from Silicon Valley
A few months into the research, I checked in with a few connections in Silicon Valley. Jon Feiber, a veteran VC at Mohr Davidow, commented that “scale” and “venture capital” should never be used in the same sentence. As someone who has scaled everything from tiny startups to the massive Windows business, I was intrigued. His point, which was echoed by other valley VC veterans, is that venture capital is an intensely people-oriented business. These types of businesses inherently resist successful scale, especially across time zone and international boundaries. Very few of the most established VCs have created a sustained multi-country presence – so why should we expect better results?
Another valley veteran, Dubose Montgomery, co-founder of Menlo Ventures, framed the challenges this way: “win/lose” or “lose/lose”. His point was that if we invest in a great fund manager in a foreign country, and they do well, there’s a good chance that they will strike out on their own for their second fund. In this scenario, the fund manager leaves us with the infrastructure cost and need to recruit a new team. On the other hand, if we pick a fund manager who doesn’t succeed, we clean up the mess.
With all this advice, you might ask why we’ve persevered? The answer is three-fold:
- We love solving really hard problems
- We’ve confirmed that there is growing global demand for impact seed capital
- We expect to make good money while addressing the demand we’ve uncovered.
Change the Definition of Success
One of the best ways to solve hard problems is to change the definition of success. In our case, we realized that the key is not to scale our firm, but to help others create their firms, and to bring them into a global network that will have networ
k-wide federated scale. Given that we are in the business of impact venture, we want to help others succeed in their impact VC startups, even if such efforts are not immediately profit maximizing. This led us to create the Capria Accelerator, the first global accelerator for impact fund managers. By picking strong, independent fund managers and adding value through our partnership and network, we will achieve both impact and financial goals over time. Hence, by changing the definition of and process by which we scale, we will succeed where others have stumbled.
The Demand Is There
All entrepreneurs know that having a great idea is only valuable if there truly is demand for the envisioned product. So we brought a talented entrepreneur onto our team, Jack Knellinger, to connect with over one hundred people in more than a dozen countries and determine if our accelerator concept resonated . To our pleasant surprise, Jack found interested customers faster than we expected. While we’ve known for years that impact capital is readily available (a projected $1 trillion by 2020), according to a recent JP Morgan report, over 80% is focused on later-stage / lower-risk investments. The global explosion of incubators and accelerators creating thousands of startups means there is an increased need for early-stage capital. Markets respond to changing conditions and there is a growing opportunity to invest in startups as they prepare for late-stage growth capital. Impact VC startup entrepreneurs are no different than others – when they see opportunities that others are not addressing, they go after it.
We need to be able to make money as a startup accelerator. The good news is that we can afford to be patient, and we can place a lot of patient bets across the highest growth economies in the world. At the macro level, developing economies are massively outpacing developed economies in GDP growth, not just on a percentage basis, but also on an absolute basis, adjusting for purchasing-power-parity. Therefore, our investment thesis is simple: we will partner with and invest in new fund managers who will be picking some of the best and highest potential startups in the highest growth economies in the world. We will all share in the profits of those companies as they grow and provide liquidity back to their founders and investors. And by including the startups and the funds that we accelerate into the Capria network, we will help all of them become more valuable than they might on their own.