Could entrepreneurs be better judges of new ideas than expert investors?
That’s the question we’ve been testing at Village Capital for ten years. Our award-winning peer-selected investment model is a process innovation in venture capital: a tool to flip the power dynamics of traditional VC by taking decision-making power away from investors in far-flung cities and giving it to groups of entrepreneurs.
“What if I told you that venture capitalists aren’t soothsaying wise men who are uniquely qualified to predict the future of male and female CEOs alike? Don’t take my word for it: The folks at Village Capital over the last decade have been running a social science experiment that raises some interesting questions about whether the powers that be in Silicon Valley investing are really that all-knowing.”
The Peer-Selected Investment Story
Peer-selected investment was a radical experiment that’s turned into a foundation of our work.
The idea started in 2009. Ross Baird and Victoria Fram had both spent time investing in ideas at the early stage (Ross at a VC firm, Victoria at a major foundation). They had seen, and believed in, the unique role of venture capital as a way to make big, risky bets on entrepreneurs with truly world-changing ideas.
They had also seen fundamental cracks in the decision-making process - implicit bias and a reliance on “pattern recognition” that helped explain why female-founded or -cofounded ventures still receive only 15% of venture capital, and black and Latinx entrepreneurs receive less than 2%.
So they decided to test a hypothesis: What if, instead of relying on investors to “pick winners”, we chose to rely on entrepreneurs themselves? That hypothesis led to the creation of a collaborative due-diligence model that takes a bottom-up approach to investing. It was a way to shift decision-making power away from investors sitting in an office building or watching a “pitch competition” - and instead, give that power to entrepreneurs to forecast which ventures are most promising.
Over the past decade we’ve run this process more than 70 times, and it’s led to a high-performing, highly inclusive and highly resilient portfolio.