BY MAYA GAINER
Maya Gainer is a first-year International Development student and an editor of SAIS Perspectives. She previously worked as a researcher at Princeton University's Innovations for Successful Societies program, which took her to six continents to study governance and service delivery.
Ross Baird, the founder of the impact investing firm Village Capital and author of The Innovation Blind Spot, visited SAIS as part of the Development Roundtable series, where he discussed why investments fail to reach the entrepreneurs who could have the most impact.
In his talk, Baird described two major barriers to innovations that solve real-world problems.
The first, “the 0 for 3 problem,” represents investors’ tendency to back people like them: white men who live in hubs such as New York and California, and are focused on products or services relevant to the investors. Entrepreneurs who are working to solve the problems of the poor, especially women, POC, and people from developing countries, are often “0 for 3.”
The second problem is investors’ mental division of their resources into a pool for investing and making a return and a pool for charity—“two-pocket thinking.” Mentally separating profit-making activities from those with a social impact makes investors hesitant to back startups with both goals.
These insights arose from Baird’s own experiences. During the presentation, he described his experience at the Indian School Finance Corporation in Hyderabad, which made loans to private schools to upgrade their facilities. Learning how to incorporate social impact metrics such as student results into a profitable lending business informed Baird’s approach when he founded Village Capital, an impact investing firm that finds, trains, and funds entrepreneurs working on development issues such as health, education, agriculture, and financial inclusion.
After the Roundtable, SAIS Perspectives caught up with Baird to get more details on his work at Village Capital and how it contributes to inclusive development worldwide.
Perspectives: How does Village Capital identify promising entrepreneurs while avoiding the “0 for 3” trap?
RB: We believe it's important to both invest in the ecosystem itself as well as specific entrepreneurs. The typical search for innovation looks like Shark Tank; I have money and I'm looking to find a specific idea. We invest both grant money and investment capital in an ecosystem that enables successful ideas. We run programs that help entrepreneurs connect with capital and customers. We help teams hire better. And we have a broad range of partners doing so--for example, USAID is a partner in our fund and they provide grant capital that helps us do things like hiring and fundraising support that aren't going to pay off tomorrow but will pay off in the next generation.
Perspectives: How can traditional aid organizations and NGOs best support this type of work?
RB: They can invest in ecosystems, not just firms. For example, Village Capital has worked with Habitat for Humanity to run a program, "Shelter Tech," that makes the next generation of housing materials and innovations more cost-effective, locally sourced, and sustainable.
Perspectives: In what sectors is a combination of aid and entrepreneurship likely to be effective, and in what sectors is one or the other likely to work better?
RB: Sectors such as financial services that have high profit margins and active corporate presence are more likely to have a quality combination of aid and entrepreneurship. Sectors such as agriculture may be lower.
Perspectives: How can we help support entrepreneurs who are currently being ignored through our own work, investment, or giving?
RB: Freada Kapor Klein, a mentor of mine, once said, "if you're not being intentionally inclusive, you're being unintentionally exclusive." You need to design processes (sourcing, hiring, selection) that are aware of implicit bias and mitigate it.
Many thanks to Ross Baird for sharing his experience, and to the Development Roundtable for hosting the event. More details on Village Capital’s approach and how we can address structural barriers to innovation can be found in Baird’s book, The Innovation Blind Spot. To learn about other events in the International Development Roundtable Series, click here.