Decentralized by Design: Melinda’s Big Move

A major milestone towards my vision for impact investing

As many of you know, I’ve been talking for a while about how to decentralize impact investing. I’d like to see decisions made closer to communities where innovation and impact are happening. Last week, there has been a massive validation of this idea.

Melinda French Gates announced a $1BN commitment to women and girls. It's massive and timely, and she writes with urgency. Almost a quarter of the funding — $240 million — is going towards decentralized leaders. Twelve people with strong track records, from policy to the arts to social entrepreneurship, each have been given $20 million to make grants as they see fit. It is bold and fresh, and speaks to the zeitgeist of individual agency, creativity, and diverse perspectives in our little, connected world.

This is what I’ve been talking about.

Two years ago, I shared a concept note for a new type of investment fund. One where founders who were still running their businesses would direct micro funds of ~$1 million. The idea was sparked by Naval Ravikant’s Spearhead funds and adapted for the social impact world.

The guiding philosophy of my Social Spearhead idea is that good founders make good investors. Investees would have an operator on their side with experience building a team, a board, and scaling operations. They’d probably get some useful introductions for their fundraising. Founders invest with hard-earned empathy from having been there too.

We’ve got some data to back the idea up.

Research isn’t all conclusive but it does support the idea of trying to get founders more active in the investing arena.

But when it comes to angel investing, founders share a common problem: they aren’t very liquid. They often sacrifice large salaries and most of their assets are tied up in shares in their company. This makes it nearly impossible to angel invest in other startups.

In the US, we are seeing more and more post-exit founders jumping into investing. But what about founders like my peers in Kenya, building impact-led businesses in markets where exits are rare? The benefits of having founders invest in other founders are just as clear in these markets. However, the instances of founder-investors are lower in Africa and the founder liquidity problem is more severe.

Enter Social Spearhead. Imagine a 20-million-dollar fund to back early-stage businesses making an impact in Africa. Twelve founders with a track record of business growth, fundraising, and happy teams each receive $1 million to treat as their angel portfolio. They invest on the side, leveraging their networks and market knowledge while running their businesses. They take 20% of the micro-fund profits, and the Social Spearhead has $8M reserved to continue investing in the companies that are working.

What Melinda is doing entrusting these 12 leaders with capital, and what I was advocating for, share a few common beliefs and benefits.

At the core of these decentralized models lies a fundamental belief in trusting people to make good decisions. 

We are in the midst of a movement celebrating investing in individuals. Platforms like Patreon enable fans to financially support creators they care about. Fellowships like Emergent Ventures and O'Shaughnessy Ventures empower people to pursue bold ideas by providing them with capital to explore ideas before they start an entity. One of the hottest charities today, GiveDirectly, challenges traditional aid models by putting cash directly in the hands of recipients, trusting them to decide how best to improve their lives. This shift reflects a growing recognition that empowering people with agency and trusting their judgment can unlock immense potential. In the Digital Age, individuals increasingly command brands and loyal followings on par with or stronger than institutions.

A key benefit of this decentralized, person-driven approach is its ability to facilitate scalable community investing. 

Evaluating and vetting promising ideas at a small scale is time-consuming and inefficient for large foundations or investment funds. Individuals have an advantage here in the niche they know. There is a huge opportunity to leverage their networks, domain expertise, and on-the-ground knowledge to identify and support initiatives that may not yet have sophisticated fundraising processes or extensive track records.

Moreover, it addresses the additionality paradox. Whether it is a good business or an effective charitable program, capital tends to flow towards proven ideas. But we need people taking risks to prove the next cohort of things that work! And there’s a bottleneck in getting money to those ideas. A decentralized approach ensures these crucial early-stage initiatives receive the support they need to grow and scale from people who understand the opportunity.

Like anything new, there are risks to decentralized impact investing. Things could go wrong.

A few of these great people might be bad at picking other great people. But our current structure of investing and philanthropy picks things that don’t work all the time. We are far from perfect, so why not try something new?

Whenever I bring up this idea, people worry that “doers” have “day jobs.” It is true. They wouldn’t be able to get into the domain of full-time investing or complex financial instruments. But these “doers” are often engaging in community outside of the “day job” anyway, from participating in government advisory groups or mentoring people a couple steps behind them. Giving them some capital to back the ideas they are learning about wouldn’t add a lot of extra work. And that ambient research the day job provides is building their unique perspective.

Founders and local leaders will have blind spots and biases. I know I do. So we have to trust people are building their own form of checks and balances through things like mastermind groups and mentors.

Melinda’s commitment is an important step towards decentralized funding– a trend I believe could rewire how we identify and back transformative ideas. A trend that could empower people to invest in their communities, whether that community is entrepreneurs in Zambia or women in health tech. This trend, combined with technology that is already making it easier to find and vet ideas, gives us a one-two punch to reduce friction in the funding arena in the future. We’re at the beginning of a movement. And as someone who has seen firsthand the inefficiency in matching good ideas to money that is seeking good ideas, I can’t wait to see where this goes next.