Power dynamics in funding
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They explain why shifting decision-making power to those with lived experience of the problem at hand is both timely and leads to better outcomes. For impact investing, we look into the peer selected investment approach of Village Capital, where Marta is a manager. Ben, who co-wrote a book on participatory approaches in philanthropy and impact investing, analyzes what decision making processes in foundations and investment funds have in common. We hear examples of organizations that have introduced participatory approaches around funding decisions, and address reservations funders may have towards ceding decision-making power. In an outlook beyond the world of impact investing and philanthropy, we hear about the potential for participatory budgeting to restore trust in democracy.
Key takeaways
- The peer selected investment approach pioneered by Village Capital is designed to increase diversity among investees backed by venture capital. Within each of VilCap’s accelerators, the participating start-ups rank one another throughout the program, and this peer ranking determines which ventures will be funded.
- A study conducted in partnership with Emory University shows that the peer selected investment approach has been effective in mitigating implicit bias in the venture capital process. Geographic and demographic diversity is higher than in the traditional venture capital portfolio. Peer predictions regarding future commercial success (subsequent fundraising and revenue generation) are on par with predictions from venture capitalists.
- For both impact investing and philanthropy, three key opportunities in the decision-making process around funding offer the possibility to involve diverse perspectives: 1) coming up with a Theory of Change / an investment hypothesis 2) building the pipeline of potential ideas worth funding 3) vetting the ideas in the pipeline and allocating funding.
Links
- Village Capital’s “Flipping the Power Dynamics” report presents findings on the outcomes of the peer selected investment approach regarding both diversity and commercial success.
- Letting Go, the book Ben co-authored with Meg Massey, argues that philanthropists and impact investors can do more good by giving up control.
About Financing Impact
Financing Impact is a podcast about funding and scaling societal impact. This podcast is brought to you by SciFi, the Societal Impact Financing Initiative at ESMT Berlin. SciFi is supported by the Bill & Melinda Gates Foundation, among others.
For feedback on the show or to suggest guests for future episodes, contact us at scifi@esmt.org
