Building a Social Capital Market in Canada
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Transcript of Building a Social Capital Market in Canada
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Building a Social Capital Market in Canada
October 2005
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1. Social Capital Market: Financing Social Change
2. Global Context
3. Canadian Approaches
4. Roles We Can Play
Agenda
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Government Funding
Private Investment
Charitable Donations
Financing Social Change: Traditional Investment Lenses
Social Safety Net Civil Society
Wealth Creation
Blended Outcomes
?
We tend to think of investment through traditional sector-based lenses . . .
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Financing Social Change: The Need for Multiple Lenses
Private Investment
Charitable Donations
. . . but innovative solutions to social and economic challenges may exist between these silos
E.g.
• Sustainability and Conservation
• Inner-city economic development
• First Nations economic development
• Affordable housing
Government Funding
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Joint venture of nonprofit housing corporations in Winnipeg
Renovates run-down housing in the inner city
Employs 10-15 low-income inner city residents, mostly Aboriginal Canadians
Has revitalized dozens of homes and commercial buildings across the Winnipeg inner-city
Generated nearly C$1.5M in business revenue in 2004 / 2005 but is struggling for profitability
. . . and some ground breaking organizations already defy these traditional views
Financing Social Change: An Example
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Financing Social Change: An Example
Business generates revenue, strives for profitability and services loans
However,
Profitability and returns do not meet typical private investment hurdles
Jobs are provided for those who might otherwise rely on social assistance
However,
Government is reluctant to support an organization that competes within the private sector
Affordable housing is constructed and at-risk individuals receive job training
However,
ICR does not fit the traditional definition of a charity and cannot receive philanthropic gifts
Investment Outcomes Policy Outcomes Charitable Outcomes
However, these organizations often fall between the cracks of traditional financing programs . . .
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Blended Outcomes
Pure Social
Outcomes
Pure Financial Outcomes
Traditional Charities
Social Enterprises
Traditional
Businesses
In these cases we must set aside traditional lenses and create hybrid financing mechanisms . . .
Financing Social Change: A Social Capital Market
Hybrid Financing Vehicles are Required
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Financing Social Change: Hybrid Financing Tools
Provide access to capital and assist in assessing financial risk
Offer effective tax incentives based on an assessment of overall returns to society
Foundations
offer loan loss reserves or guarantees
Charities help assess social benefit
Private Investors GovernmentCharitable
Organizations
Each of the traditional sector-silos possess tools that could be used to create hybrid investment vehicles . . .
Success is measured in terms of “Social Return on Investment”
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The UK
Future Builders– Approximately $250M Cdn to help finance social sector
infrastructure investments Phoenix Fund
– Approximately $100M in support for direct investment, CDFIs, CDVCs, and a central CDVC.
Community Investment Tax Relief– Tax relief credit for investment in disadvantaged
neighbourhoods.
These countries have built up successful track records over the last 10-20 years.
However there is a significant role for government to play in making this a more desirable outcome
The US Community Reinvestment Act
– Legislation passed requiring mainstream FIs invest a component of their loan books in disadvantaged areas.
Community Development Financial Institutions Fund– Support in the form of start-up or further capital infusions,
technical assistance, or in the form of tax incentives. Community Development Venture Capital Funds
– Tax and capital support for the financing of community development venture capital funds
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The investor development and government support in the
UK and the us has enabled some significant success
stories
Significant support from government, and from other sectors, has fostered the
availability of capital through mainstream institutions and new CDFIs, and supported
the development of true blended value organizations.
The ShoreBank (US)
Triodos Bank & Charity Bank
Stony Field Yogurt (US)
Energywise Recycling (UK)
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Key impediments – A variety of different organizations are attempting to develop alternative structures that may better reflect a blended value proposition:
– Charities and NFPs– A variety of social enterprises
A growing industry of socially responsible investors finds that it can be difficult to invest in the developing ‘gray space’:
– Foundations interested in making program related investments (pri)
– Funds that need to present a market value proposition to investors
Unfavourable regulatory framework
Narrow political and cultural norms
Lack of innovative investment vehicles
Investor resistance
Progress remains slow in Canada for a variety of
regulatory and cultural reasons
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Underinvestment in Hybrid Approaches: A Vicious Cycle
And. . . Leads to. . .
And. . .
Few Risk Capital Investment Vehicles
Dearth of Hybrid Investment Institutions
Less Risk taking and Innovation
Limited Hybrid Investment Expertise
Fewer entrepreneurial
approaches
Resulting in . . .
And few chances to overcome . . .
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And allow . . .
Which creates. . .
Develop . . .
New Risk Capital Vehicles
Social Investors
Entrepreneurial Solutions to Social
Problems
Which encourage . . .
And attracts new . . .
Why Social Enterprise: Creating a Positive Cycle
Risk taking and Innovation
Greater social returns
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Vartana – a social sector focused financial institution
AND
A bank
• By creating an innovative charitable financial institution built with the sector to better meet its full range of financial service needs
• By strengthening voluntary sector organizations, helping them become more effective and innovative in fulfilling their missions
• By building relationships and support across Canada’s voluntary sector, regulatory and business communities
• By establishing a new bank that is economically viable and fits within current policy frameworks
The Bank will significantly enhance the options available to Canada’s voluntary sector:
A registered charity
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Vartana – the need
“The most pressing current challenge facing the sector relates to financial capacity. It is clear that new models that provide non-profit and voluntary organizations with the stability and support they
need to develop human resources and organizational infrastructure, and to engage in
long-term planning are at the heart of realizing their full potential to serve Canadians.”
- Voluntary Sector Initiative
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Vartana – the proposed products/services
Traditional banking products tailored to the sector’s needs…
Loans and guarantees:
• Working capital loans
• Short term bridging loans
• Underwriting for a fund-raising programme
• Final step loans so a project can go ahead
• Loans for capital equipment
• Mortgage loans
• Renovation loans
• Credit cards
Deposit products:
• Chequing accounts
• Savings accounts
• Term accounts (e.g., GICs)
Financial advice and information
Cash management:
• Disbursement services
• Automated information and reporting systems
• Lockbox
• Electronic payments
Investment expertise:
• Investment and advisory services
Employee Benefits:
• Group medical and dental
• Group non-medical and life
Payroll Services
…and, in the future, additional financial products and services
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Our Mission
Invest in social enterprises that employ people from economically marginalized communities
Enable these organizations to grow and succeed financially
Support these organizations to create improved social and financial outcomes for employees
Catalyze other innovative financing models for social initiatives
About SCP
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Our Investment Approach
Using the principles of
venture capital
To invest in high potential social
enterprises
And create a network of successful enterprises
across Canada
That ultimately employ
thousands of people
• Risk capital
• Deep engagement
• Management support
• Growth oriented
• Profitable
• Strong job creation per dollar invested
• Cross pollinate ideas and best practices
• Engage communities
• Make the concept “mainstream”
• Provide a positive alternative to social assistance
• Make long lasting changes in communities
About SCP
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$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Portfolio Company Operating
Profits
Target Employees
Non-Target Employees
Portfolio Company Revenue
Target Employees: 260
Total Employees: 400
Portfolio Company Revenue: 10.6M
Portfolio Company Profits: 600k
Individual Portfolio Companies
About SCP: Results from our Portfolio Companies
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What can you do about it?
Key Messages
Private sector
Charities/NFPs
Foundations
Look for ways to be catalysts for blended return projects Think with both a business and a charity hat on more
frequently
Learn and speak a blended return language Consider possibilities outside a solely charitable structure
Consider investing part of your capital base, via program related investments (PRI), in organizations in the form of debt or equity, along with grants
Consider convening meetings including all parts of the community to further advance this type of thinking locally
Government
Consider regulatory policy that can act as an enabler to a developing social capital market
Consider tax policy that makes blended return investments more attractive
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www.socialcapitalpartners.ca
www.vartana.org