Xconomy Bookclub: Village Capital CEO Tackles Innovation’s “Blind Spot”

Xconomy Texas — 

Silicon Valley has written the playbook for building innovative companies that have transformed the global economy.

But it doesn’t hold the exclusive patent on the only path to innovation. That’s the view of Ross Baird, the co-founder and CEO of Village Capital, a Washington, DC-based social impact venture firm, and author of the new book “The Innovation Blind Spot.”

“The American dream has been replaced by the Silicon Valley dream, and that dream is only accessible to a tiny percentage of the population,” Baird told me in an interview.

In essence, he says that dream has increasingly become the exclusive realm of a narrow group of people—think Mark Zuckerberg-esque, Ivy League education, young, and connected.

“We must find—and promote—entrepreneurs and innovators everywhere, not just those who went to the best schools, know the right people, and live in the most developed innovation cities,” writes AOL founder Steve Case in the forward to “Blind Spot.” “We need everybody on the playing field if we’re going to remain the most innovative, entrepreneurial nation in the world.”

Take venture capital as a proxy for who are America’s innovators. Today, Baird points out that an overwhelming majority of funding goes to founders in three states: California, New York, and Massachusetts. Women founders only receive 5 percent of funding, while just 1 percent goes to African-Americans.

Money is the lifeblood of an innovation ecosystem. Without it, young companies die. But if that key ingredient fails to reach large parts of the population, Baird writes in his book, “the idea of entrepreneurship as a meritocracy is wrong.”

The problem is the practice of pattern recognition, which causes investors to make future investment decisions based on what they’ve seen succeed in the past. “There’s been very little innovation in how we find ideas,” Baird writes. The “two and twenty” compensation model for investors that is used by most venture firms hails from the need to raise capital to fund whaling expeditions in the 1830s. “The term ‘carry’ is still widely used,” he writes. “But today it’s being used to chase unicorns rather than whales.” “Carry,” or “carried interest,” is the investor’s share of profits from a venture.

Today, that system values short-term profits over the long-term success of businesses, leading to quick exits rather than building up corporate institutions that will provide solid … Next Page »

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