ENTR4800 Class 10: The Enabling Environment for Social Entrepreneurship
ENTR4800 Class 5 (Part 2): Financing Considerations for Social Enterprises
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Transcript of ENTR4800 Class 5 (Part 2): Financing Considerations for Social Enterprises
ENTR 4800: Social Entrepreneurship
Class 5 (Part 2): Financing Considerations for Social Enterprises
Monday, October 17, 2011
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Instructors: Norm Tasevski ([email protected]) Karim Harji ([email protected])
© Norm Tasevski & Karim Harji
Agenda
• Before the break…Part 1 (Costing Analysis for Social Enterprise – Separate Slide Deck)
• Financing Options Available to Social Enterprises (for-profit and non-profit)
• What do investors care about? • What did we learn – today? • Next week
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Financing Options for Social Enterprise…
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© Norm Tasevski & Karim Harji
MORE DEBT-LIKE
4 Source: Alex Nicholls and Cathy Pharoah (2008) “The Landscape of Social Investment”, http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestment.aspx
Financing Options – Over the Social Entrepreneurship “Life Cycle”
IDEA DEVELOPMENT PROOF OF CONCEPT START-UP SCALE REPLICATION EXIT
GRANTS
MORE EQUITY-LIKE
SOCIAL VENTURE CAPITAL FUNDS
ANGEL INVESTMENT VENTURE CAPITAL
PROGRAM-‐RELATED INVESTMENT/RECOVERABLE GRANTS
FORGIVABLE LOANS
SOCIALLY RESPONSIBLE INVESTMENT FUNDS
BELOW-‐MARKET DEBT
MARKET-‐RATE DEBT
© Norm Tasevski & Karim Harji
Cash
5 Source: F.B. Heron Foundation and Jessica Shortall (2009): “Introduction to Understanding and Accessing Social Investment”
Another Way to Think of Financing Options…
Grant Support
-100% -90% to -10% 0% 1% to 7% 8% +
Private Equity Subordinated
Loans Senior Loans Cash
Lower risk Higher risk Higher risk Lower risk
Guarantees
Fixed Income Public Equity Private Equity
Grants “Soft” Investments Capital-protected investments
Commercial-return investments
Social returns only Very soft debt
Mix of grants and other capital
Willing to lose some money
“Blended return” equity
Soft debt
Willing to take below-market return
Market-rate debt
Equity
Full commercial returns
Social benefit can be a requirement
© Norm Tasevski & Karim Harji
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Features of Different Funding Instruments
© Norm Tasevski & Karim Harji
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Aligning Supply and Demand…
Source: Alex Nicholls and Cathy Pharoah (2008) “The Landscape of Social Investment”, http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestment.aspx
© Norm Tasevski & Karim Harji
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Sources of Financing
Banks/Credit Unions!
Specialized Funds!
Grantors!
Investment Management Firms!
Foundations!
Vancity!
Alterna Savings! Canadian Co-operative Association!
Citizens Bank!
Desjardins!
Canadian Alternative Investment Co-op! Community Loan
Funds (various, in most major cities)!Social Enterprise
Fund (Edmonton)!
Enterprising Non-Profits!
Toronto Enterprise Fund!
CAPE Fund!Ecotrust Canada Capital!
Fonds de solidarité! Renewal2 Investment Fund!Resilient
Capital!Social Capital Partners!
Edmonton Community Foundation!
JW McConnell Family Foundation!
Maytree Foundation!
Ontario Trillium Foundation!
Tides Canada!
© Norm Tasevski & Karim Harji
Sources of Financing Organized by Stage in the Venture Life Cycle
Business Development Stage!
Sources of !Grants/Technical Assistance!
Sources of Equity Financing!
Sources of Debt !Financing!
Building Organizational Capacity!
• Centre for Sustainability (POD Grants)!• Coast Capital Savings Community Fund Grants!• Coast Capital Savings Foundation (youth)!• Endsweel Foundation!• Tides Foundation!• Vancity Savings Credit Union Grants!• Vancity Community Foundation grants!• Vancouver Foundation!
Business Plan Development!
• BCT SVP!• CEDTAP grants!• Coast Capital Savings CED Department!• Enterprising Non-Profits!• Vancity Community Foundation grants!
Start Up!• BCT SVP! • Renewal Partners!
• Social Venture Partners!• New Social Venture Fund!
• CCEC!• Community Futures Development Corporations!• Coast Capital Savings – Rising Tide 2 Fund!• Ecotrust!• Vancity Savings Credit Union!• Vancity Community Foundation loans!
Operating!• Renewal Partners!• Social Venture Partners!• New Social Venture Fund!
• Vancity Capital Corporation!• Ecotrust!
What do (social) investors care about?…
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© Norm Tasevski & Karim Harji
Financing Considerations Used by the Canadian Alternative Investment Co-Op (CAIC)
CAIC’s Criteria: • What is the project? • What is the social benefit? • Provide a detailed
description of: – i) how the project is
going to be financed; and
– ii) how it is going to operate on an ongoing basis
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What does CAIC care about? Your ability to tell your “story” in
a clear, simple & compelling fashion!!
© Norm Tasevski & Karim Harji
CAIC Financing Considerations: Management
CAIC’s Criteria: • Staff and management
– Highlight relevant experience • Board of Directors
– Highlight relevant expertise/experience
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What do they care about? – The caliber of the individuals undertaking the project – Who is giving your guidance, what resources and
experience you are drawing on
© Norm Tasevski & Karim Harji
CAIC Financing Considerations: Investment Proposal (1)
CAIC’s Criteria: • Amount of loan requested • Terms of repayment: term, amortization, interest rate • Collateral or potential guarantors • Demonstrate sound and realistic business case
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What do they care about? Whether you can present a Sound, Realistic, Understandable business case
© Norm Tasevski & Karim Harji
CAIC Financing Considerations: Investment Proposal (2)
CAIC’s Criteria: • Shared risk • Multiple sources of capital • Present sources of credit • Potential sources of credit (inc. their response)
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What do they care about? • That you’ve considered ways to mitigate risk to
investor • That you have multiple and sufficient sources of
capital
© Norm Tasevski & Karim Harji
CAIC Financing Considerations: Financial Organizational Capacity
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CAIC’s Criteria: – Most recent internal operating statement & balance sheet – Budget & cash flow projections for the current and upcoming year
demonstrating how the CAIC loan would be repaid – Financial Statements (audited or reviewed) for the last two years – Organizational financial management practices (i.e. financial planning,
organizational resources, financial operating systems, & financial soundness)
What do they care about?: That you’ve mapped out all aspects of the business/operations, and that they are getting the attention that they need
© Norm Tasevski & Karim Harji
What did we learn?
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