ENTR4800 Class 7: Impact Investing and Social Finance

ENTR 4800: Social Entrepreneurship

Class 7: Impact Investing and Social Capital Markets

Monday, November 1, 2010

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Instructors: Norm Tasevski ([email protected])

Karim Harji ([email protected])


Agenda

•  Kiva.org •  What did we learn – Last Week? •  Presentation – Serge LeVert Chiasson & Adam

Spence •  Overview of Impact Investing & Social Capital

Markets •  “Live Case” – Serge & Adam •  What did we learn – Today? •  Next week

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Last Week – What did we learn?

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Speakers…

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So, what are we talking about?

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Social Finance! Impact Investing!

Socially Responsible Investing!

Social Investing!

Mission-Driven Investing! Sustainable & Responsible Investing!

Blended Value!

Value-Based Investing!

Mission-Related Investing!Ethical Investing!

Responsible Investing!

Program-Related Investing!

Triple-Bottom-Line!

Environmental, Social and Governance Screening!

Donations!

Charitable Giving!

Venture Philanthropy!


The Looking-Glass World of Nonprofit Money

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•  Price covers cost and eventually produces profits, or else the business folds

Full article available at: http://nonprofitfinancefund.org/files/docs/2010/NPQSpring05.pdf

•  The consumer buys the product

•  Cash is liquid •  Price is determined by producers’ supply and consumers’

ability and willingness to pay •  Any profits will drop to the bottom line and are then

available for enlarging or improving the business •  Investment in infrastructure during growth is necessary

for efficiency and profitability •  Overhead is a regular cost of doing business, and varies

with the business type and stage of development

F F F F F F F


The Spectrum of Markets

FINANCIAL CAPITAL MARKETS

Financial Return

Financial Performance Measurement

•  Debt •  Equity

•  Retail (mutual funds, online brokers) •  Institutional (Exchanges, Alternative

Trading Systems)

About 5%

FINANCIAL CAPITAL

MARKETS

$50 Trillion

SOCIALLY RESPONSIBLE

INVESTING Social Screening and Shareholder Advocacy

$7 Trillion

RETURN

MEASUREMENT

PLATFORMS

INVESTMENT TYPE

AVERAGE TRANSACTION

COST

MARKET SIZE

IMPACT INVESTING MARKETS

Financial + Social Return

Financial + Social Measurement

•  Debt •  Equity

•  Retail (online micro finance) •  Institutional (Impact Funds,

emerging platforms)

About 10%

$5 Billion

PHILANTHROPY (GIVING MARKETS)

Social Return

Social Performance Measurement

•  Grants

•  Retail (offline channels, online giving, Donor Advised Funds)

•  Institutional (Foundations)

About 30%

$300 Billion

SOCIAL CAPITAL MARKETS / MARKETS FOR GOOD


Social Finance Continuum

9 Jed Emerson (2003) “The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation ”

Organization Type

Primary Goal

Capital

Charge for Products and

Services

Traditional Non-Profit

Social Enterprise (Non-Profit & For-

Profit)

Socially Responsible Corporate

Traditional Corporate

Non-financial mission (social and/

or environmental value)

Social mission with minimum

expectation of financial return

Profit driven with social and/or

environmental objectives

Profit driven (economic value)

Donations and Grants

Below-market capital, or mix of donations and

market-capital rate

Market-rate capital (including SRI investments)

Market-rate capital

Beneficiaries pay nothing

Subsidized rates or mix of full payers

and those who pay nothing

Market-rate prices Market-rate prices

Purely Philanthropic Purely Commercial


The Social Capital Market

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Socially Responsible Investment

Commercial Investors

Venture Philanthropists

Foundations

Taxpayers

Supply

Non-Profits

Social Enterprises

Social Purpose Businesses

Co-Operatives

Entrepreneurs

Social Economy Organizations

Demand

Credit Unions

Social Stock Exchanges

Community Loan Funds

Rating Agencies

Associations

Intermediaries


Social Finance Across Canada

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Serge LeVert Chiasson

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Cash

13 Source: F.B. Heron Foundation and Jessica Shortall (2009): “Introduction to Understanding and Accessing Social Investment”

Supply of Finance

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


MORE DEBT-LIKE

14 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


DEBT EQUITY

$0 $500,000 $1 million $10 million $100 million

OTTAWA COMMUNITY LOAN FUND (Up to $15k)

INVESTECO (Up to $2 mil)

TSX CLEANTECH CLUSTER ($10 - $100+ mil Deals)

RENEWAL FUND (Up to $2 million)

ACCESS COMMUNITY CAPITAL (Up to $5k)

CAPE FUND ($1 - 7.5 million)

VANCITY CAPITAL CORPORATION ($50k to $10 mil)

CAIC: ENTERPRISE (Up to $50k)

CAIC: MORT. (Up to $500k)

SCP (Up to $300k)

Source: Social Venture Exchange (SVX)

Supply: Major Players


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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


Adam Spence

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Why Intermediation Matters

•  Scale = reduce transaction and search costs •  Investment readiness of ventures •  Common language and industry standards •  Risk assessment tools •  Assessing social value creation

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Who will build (and pay) for these intermediaries?


Alterna Community Alliance Housing Fund

•  Created to address Ottawa’s affordable housing shortage •  Provided low-cost financing for second-mortgage financing •  Structured as investment grad instrument offering a five-year GIC ROR •  Took 7 years before PSAC was able to find a “risk-free vehicle” to do this!

19 Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”

Public Service Alliance of Canada

•  Invested $2m to create the fund

•  CommiQed to responsible invesRng

• Market rate of return in a “vehicle” that fulfilled fiduciary responsibility

Alterna Savings Credit Union

•  Structured an investment vehicle to provide market rate of return as well as direct social impact

•  Provides operaRonal / admin. support

OQawa Community Loan Fund

•  Non-‐profit responsible for screening projects that are •  Affordable to those most in need

•  Affordable in the long-‐term

•  Constructed by unionized workers

Carleton Centre for Community InnovaRon

•  Intermediary that helped to align the interests of the groups

•  Suggested alternaRve models drawing on research and experience from the US and UK

Break

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“Live Case”

•  What is the investor perspective? •  Is your idea a good candidate for investment? •  What can you improve on to pitch to investors?

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What did we learn?

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Next Week

•  Jon Packer, Idea Workshop

•  Deliverable: Have Questions Ready!!

•  Readings

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ENTR4800 Class 7: Impact Investing and Social Finance

Business

Transcript of ENTR4800 Class 7: Impact Investing and Social Finance