- Ross Baird is the president of Village Capital and the author of the "The Innovation Blind Spot: Why We Back the Wrong Ideas―and What to Do About It."
- Baird points out that only one percent of start-up investment goes to African Americans, only two percent of capital goes to women, and 80% of all funding goes to only three states. This leaves many entrepreneurs overlooked.
- Baird says if you are an entrepreneur that wants to change the world then think small. He says pick a very specific problem that you see in your job, in your industry, in your neighborhood, and try and be excellent at solving that very specific problem.
- Baird's interest in social entrepreneurship started when he was working in microfinance in India. He helps us understand when microfinance is beneficial to the community and when it becomes extractive.
Following is a transcript of the video.
Sara Silverstein: Tell me what you do at Village Capital.
Ross Baird: So at Village Capital, we back entrepreneurs that are reinventing the system. You know we've got inequality at a 100-year high in our world. We're worried about the sustainability of our planet, we're worried about feeding a growing population, and we're backing entrepreneurs who have new ideas to solve some of those challenges that hit us in the face everyday.
Silverstein: And are you focusing on the ideas that the entrepreneurs have or who the entrepreneurs are?
Baird: I think, I think it's inseparable. You know we have a story I tell a lot. We have an entrepreneur name and he grew up an immigrant from Haiti. He moved here, age 11 and saw his mom get ripped off everyday by payday lenders, check cashers, people taking advantage of poor people like his family. He came here to New York, worked on Wall Street figured out how to help poor and middle class families refinance their debts, and he went out to raise a bunch of money and completely struck out.
JPMorgan
Jerry Nemorin is founder of LendStreet
I said, "Jerry" - When I first met him, I met him a few years ago, I said, "Jerry, you've got a great idea solving a huge problem, where - what's happening?"
He goes, "You know, the financial market works in patterns. I am a black guy, I come from South Florida, and I'm solving poor people's problems. I'm 0-3, you know."
White guys in hoodies in San Francisco and New York do pretty well when it comes to raising money. We think that there are ideas that solve problems in people, places, industries we're not paying attention to and those are the entrepreneurs that we're trying to lift up and back.
Silverstein: How did you get involved in this in the first place?
Baird: So I started a company about nine years ago. I have always been an entrepreneur. I mean, every since I was a kid, I was running different hustles all the time. And I saw very often working - you know, I was living in India working for a start-up microfinance bank. And the microfinance industry is - $30 billion a year around the world is lent in $500 chunks to small businesses, near a 100% repayment rate. Totally transformed financial services in emerging markets. And the thing I saw in India was how businesses on the ground close to the problem can solve a lot of the problems that we have. And so I tried to take what I'd seen in the grassroots all around the world and apply it to the capital markets here where, you know, the distance from Wall Street to Newark might as well be half the world away even though it's only a couple miles.
Silverstein: Is all microfinancing good? Is some of it bad? And how is it different from payday lending?
Baird: Albert Einstein once said, "If I had an hour to solve a problem, I'd spend 55 minutes solving the problem and five minutes on the solution." You know -
Silverstein: What does that mean?
Baird: That means microfinance is a tool. All investing is a tool. Every microfinance bank, every bank is neither good nor bad, they're amoral. It's just what are people trying to do with it. I've seen microfinance banks that act in extractive ways and their primary goal is extract as much profit out of poor communities as possible. I've seen payday lenders do the same thing. I've also seen microfinance banks that are very good and say, "Our core goal is building wealth for the community and we've structured our business in a way that works for us." I was in India and there was a microfinance bank that was the fastest growing microfinance bank in India and they raised venture capital from Silicon Valley and they were pushed to grow 10 times faster. I would argue that because that happened they lost their impact. They started signing people up for loans who may not have needed them and you know, people had three or four loans at the same time and it - the bank grew unsustainably fast because profit dominated what they were trying to do and ultimately, the bank lost a lot of value because they lost a lot of customers and so it was an unsustainable way to operate a bank. I would say, you know, investing is neither good nor bad. It depends on what you use it for. Same thing with microfinance. Same thing, you know, there are people who lend in very poor communities who are very extractive. There are some lenders in poor communities that are payday lenders at good interest rates that are good. So I think you just have to look at what is this business trying to accomplish in addition to making money and evaluate it from there.
Silverstein: And can you expand on the thesis behind "The Innovation Blind Spot," behind your book?
Baird: Yeah, so you know, going back to Jerry. 0-3 - he says, you know, as a black guy he has a hard time getting his ideas, his small little idea into the big market. One percent of start-up investment goes to African-Americans. Two percent of start-up investment goes to women. There are a lot of people who are overlooked. Jerry was from South Florida. He was trying to start his business in Central Virginia. Where you live matters. So roughly 80% of start-up investment goes to three states: New York, Massachusetts, California. If you're in Ohio or Florida or Nairobi or Mumbai, it's really hard to get your idea into the system. And Jerry said he was trying to solve poor people's problems. The biggest industries, the six biggest consumer industries: health, education, financial services, energy, agriculture and housing only make up 15% of the billion dollar start-ups that we've created. So we have a lot of money going to a few people and places and problems that are - make the lives of people who are doing pretty well more convenient, but the people working hard on the problems that really matter for the future of our society often have a really hard time getting a shot. And so "The Innovation Blind Spot" says here's how you can be, in your day-to-day life, more innovative. And here's how you can find ideas from the people and places and areas that you might not have otherwise thought of.
Silverstein: And when you're talking about these entrepreneurs and start-ups, what size allocations are you making to them?
Baird: So we will do, you know, $50,000-$250,000 investment in an entrepreneur who is solving a chronic problem that the market is overlooking.
Silverstein: And how much have you put to work in these types of investments?
Baird: So we've invested almost $10 million. We've invested in close to 100 companies all over the world. And we found, we have a very different process for investing. We found very different results. So about 43% of our investment is in women compared to 2% in the mainstream market. About 34% are in people of color compared to 1%. Ninety percent are outside New York, Massachusetts, San Francisco, compared to 20%. So we've been able to get a lot of ideas out there and we're seeing some really exciting results.
Silverstein: And can you make money investing in people and ideas that are making the world a better place?
Baird: Yeah we are. I mean if you look at how our investments were doing and you looked at it blindly, we would, it would be a pretty promising - I mean, it's very early days. You don't want to declare victory before anything, but I think we're pretty excited about the results we have so far, even if you extract the mission for what we're doing. But I actually think our companies are performing well because of the mission they have. I mean everybody wants to work at a company whose values we believe in. Everybody gets more excited about investing or funding something that has what we believe in. So we think we've got a good business model with a very exciting mission, you're going to outperform over the long-term.
Silverstein: And do you have any advice for people who might be coming out of school right now who want to be social entrepreneurs or want to be - who are capitalists that also want to improve the world?
Baird: Yeah, you know, a lot of people think, "I want to change the world, bigger is better. I want to go, you know, to the biggest firm or the biggest city or whatever." And I would say the most impactful entrepreneurs I've seen embrace the mantra, small is beautiful. Pick a very specific problem that you see in your job, in your industry, in your neighborhood, in an issue that you care about and try and be excellent at solving that very specific problem. Because if you can change, you know, your line of your division at your first job, you can change your company, which changes your industry, which changes the world. Or if you can change your neighborhood or your block, you start to see a ripple effect. So I would say try and get as specific, and tangible, and small about the problem you're excited to solve, and your career will take you in really exciting directions.