A Vision of Grassroots Venture Capital

When I was a venture capitalist, I was often asked what it would take to create a venture capital industry in Mexico or Indonesia or just about anywhere outside of Silicon Valley.   There were often many very good reasons why it couldn't or hadn't happen - deal flow, amount of money that needed to be invested, cost of managing a fund, a service provider ecosystem, etc. 

One of the biggest obstacles was just scale.  Scale turns out to be a big deal in venture - you need to put large amounts of money in to get your 10x-100x return.  In many communities, the businesses are small to medium size enterprises (SMEs).  They needed small amounts of money - 4 or 5 figure amounts, not 6 figures and certainly not millions. They're never going to go IPO.  What capital market could they go to?

So, if you live in a small community in Mexico, say, and there's no capital market to foster the creation of  small businesses, what do you do?  You join the ranks of millions of transnational workers and you come to the U.S. to work.  And, strangely enough, through your remittances, YOU become the source of capital for your country.

In 2004,  Mexican immigrants  sent more than $16 billion back to their communities of origin.  The remittances were used to take care of basic services such as food, clothing, healthcare.  What if the Mexican diaspora could tap into a portion of those assets to create funding for their businesses?  They wouldn't need Wall Street and they wouldn't have to wait around for some large institution to take a leap of faith and provide capital for them.  The community could do it themselves.

As it is, Mexican hometown associations in the United States have already begun to organize social remittances to build schools, pave roads and pay for other infrastrcture improvements in their hometowns. The Zacatecan federation of clubs have gone so far as to negotiate a 3-for-1 investment program with the Mexican government.

Imagine if these small groups of social investors transformed themselves into small angel groups for start up businesses.   Imagine that they were able to tap into a  microequity fund that they helped create?

This is the goal of Indigo Financiera and the Indigo MicroEquity Fund.   Hometown associations and other social groups can use the Indigo Scoot Mobile  Money card to take care of  basic banking needs. A portion of the  profits from Indigo Financiera go into the Indigo MicroEquity Fund.  The Fund then works with these bands of angels and co-invests in the businesses that they have sourced, evaluated,  and support.

Indigo Financiera becomes a way for the diaspora to channel some of their funds into a capital market of their own.  It's grass-roots venture capitalism.

Comments

[Helen Wang]

Dear Margaritta,

This is a great post! Very clear and very inspiring! Keep up with the good work!

[Dave]

hi Margarita -

congrats on the new venture. some pretty interesting ideas... seems like you've been taking your earlier concepts & diving right in :)

Q: how do you plan to handle liquidity / exit for the "angel" investments the microequity fund makes? will the startups you're targeting be taking the investments primarily as debt, or equity?

best of luck & keep up the blogging,

- dave mcclure

[Bill Melendez]

Margarita: Tienes razon. Why do hispanic entreprenuers start small to medium sized companies? Is it because we focus on the "service" side more so than technology development or Intellectual Property developed processes? I see a lot of support by hispanic business groups for local type grass roots business catering to local economies but none to national or global economies. Are there so few capable executives/entreprenuers?

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