A Real Angel Investor
Silicon Valley's Village Enterprise Fund backs its startups $100 at a time. Which, in rural east Africa, leads to some pretty amazing returns.
(Business 2.0) – On the remote plains of Tanzania, about two hours from the city of Dodoma, a company called Iron Monger Group churns out farm tools handcrafted from spare truck springs. It was founded for a mere $100, enough to cover the cost of an anvil. Now, five years later, business is booming; Iron Monger has even begun exporting tools to Zambia and the Congo.
Starting a forge in Tanzania or a chicken farm in Uganda isn't all that different from launching a Silicon Valley startup--you need seed funding and devoted entrepreneurs. That's the idea behind Village Enterprise Fund, a San Carlos, Calif., nonprofit organization whose microgrants have successfully launched more than 9,000 small businesses in developing countries since 1987. A staggering 75 percent of the startups have lasted at least four years, while more than a third of the entrepreneurs later launched second businesses. "We wanted a program that was simple but had a long-term impact on the lives of the poor," says executive director Brian Lehnen, who worked in biotech before founding VEF.
To target people at the very bottom of the economic ladder, VEF distributes microgrants--not microloans, which are more common but largely tend to aid established businesses. The firm also decided early on to focus on one region so it could pinpoint indigenous volunteers to train the entrepreneurs. VEF ultimately settled on east Africa, since Kenya, Tanzania, and Uganda are very poor but stable countries with lots of English speakers. For each new venture, VEF provides a $50 grant to five or more partners. If they meet their goals in six months, they're awarded another $50. One fivesome in Kenya used its VEF grant to open a roadside bike-parts stand. The group soon earned enough money to build a store, Nambilo Bicycle Spares, and about a year later opened a second store nearby.
Once the businesses are up and running, the entrepreneurs can apply for loans from VEF and other organizations. Kenyan entrepreneur Helemina L'lanziva, for example, received several $100 grants from VEF to start a vegetable stand, a chicken farm, and a dairy farm. Her ventures were so successful that VEF later gave her a $6,000 loan to build a bakery at the girls' school she runs, which now supplies bread to approximately 20 local schools and shops. "Anything she touches turns to gold," Lehnen says.
VEF, meanwhile, mines the riches of Silicon Valley to bankroll its startups: 70 percent of its $500,000 fund comes from individual donors, including veterans like Burt McMurtry, who was one of the earliest VCs to invest in Microsoft. Lehnen hopes to raise $3 million during the next four years, and so far his donors are satisfied, mainly because their money goes such a long way. Each $100 investment ends up helping 15 to 30 people, including the five partners and their families. "Microeconomics is a fantastic investment area because of the bang for your buck," says Bill Younger, a VEF donor and managing director at Sutter Hill Ventures in Palo Alto. "You can easily change the lives of hundreds of people." -- BRIDGET FINN