Final PresentationSteven Aronowitz, JD ‘08Michael Pearce, MBA ‘08

May 2, 2007

Fulcrum Funds, LLCSocial Impact Assessment

Peter Kennedy, Founding Partner

Agenda

Overview Project Scope Background on the industry

Social Impact Assessment Options Applying to Fulcrum Funds

Metrics Illustrative example

Implementation and Conclusions

Project Overview

Client: Fulcrum Funds, LLC Targeted $100m private equity fund focused on

investments primarily in the healthcare industry Currently fundraising – seeking to offer potential

investors both financial and social return Scope:

Refine methodology and criteria to measure and report on social impact of portfolio companies

Blended value investment

CSR of the investment management sector Investors increasingly want to invest their values – potential

strategic differentiator for managers One in ten investment dollars in the US is managed in

accordance with some type of social criteria (Social Investment Forum)

Private equity relatively uncharted territory At least 59 funds with assets over $2.6 billion (RISE

project) Arguably a better vehicle for blended value investment

since public company issues are removed

Social Impact Assessment

Investment managers historically judged only financial performance How well they track an index, what return they

provide If they are going to have social investment criteria

as part of their mandate, it needs to be done in a systematic manner

Desire to quantify social impact Huge challenge defining standards

You’re looking for the Holy Grail!!!

The Quest for the Holy Grail

SIA Industry Example

Calculate an absolute dollar value of social return on investment Select specific criteria to examine

Company by company basis (specific product impact)

General metrics (environment, job creation, average wage, etc.)

Investment decisions based on social projections Able to monitor social performance

versus projections

Advantages Provides absolute numerical value Removes ambiguity

Disadvantages Doesn’t have impact relative to similar

companies Many assumptions required to make

calculation

Magic Wheels - Social Return on Investment

Company-specific criteria Year 1 Year 2 Year 3 Year 4 Year 5Employment of disabled 100 120 144 173 207Improved Health 50 60 72 86 104ETC xx xx xx xx xxTOTAL $150 $180 $216 $259 $311

Standard criteria Year 1 Year 2 Year 3 Year 4 Year 5Environmental impact 25 25 25 25 25Jobs created 35 37 39 41 43Women/Minority owned 25 25 25 25 25ETC xx xx xx xx xx

$85 $87 $89 $91 $93

TOTAL Social Return $235 $267 $305 $350 $404

Based on multiple assumptions…

Social Return on Investment

SIA Industry Example

Analysis based on demonstrating relatively strong performance Criteria:

Standardize categories of comparison and apply to all companies within a sector

Maintain baseline industry standards to measure against

Advantages Standardizes for all portfolio companies Demonstrates best-in-class versus

individual performance

Disadvantages Does not have absolute dollar value Perhaps less relevant for projected

social impact

Perennial Healthcare Management - Stakeholder Quotient

10 20 30 40 50 60 70 80 90 100

ShareholdersPerennial Healthcare 80

Skilled Nursing Ind Avg 50

CustomersPerennial Healthcare 50

Skilled Nursing Ind Avg 70

EmployeesPerennial Healthcare 60

Skilled Nursing Ind Avg 30

SuppliersPerennial Healthcare 80

Skilled Nursing Ind Avg 50

CommunityPerennial Healthcare 90

Skilled Nursing Ind Avg 40

EnvironmentPerennial Healthcare 90

Skilled Nursing Ind Avg 80

OverallPerennial Healthcare 75

Skilled Nursing Ind Avg 53

Relative Analysis: Stakeholder Quotient

SIA Industry Example

Compare Fulcrum Funds to other similar funds Criteria:

Stakeholder Quotient and/or Social Return on Investment

Compare with healthcare sector funds

Advantages Apples to apples Speaks directly to investor choices

Disadvantages Difficult to get data from other funds Calculation may be arbitrary

0102030405060708090

Relative Value

FF X Y

Companies

SQSROI

Fund Scorecard

Possible Hybrid Model

To combine the advantages of both the absolute dollar value (SROI) and relative scorecard (SQ), calculate both

Company Magic Wheels

Hot Wheels Classic Wheels

SQ 90 74 62

SROI $1.2M $.9M $.6M

Fulcrum Funds

Average Medical Device Fund – Average of rest

of industry

Key Insights from Industry Research Identifying specific 2nd bottom line goals is most

important initial step PCV is focused on three specific criteria: capital to underserved geographies, jobs

creation and minority/women-led businesses CalPERS California Initiative Program has the specific goal of investing in

California’s underserved areas

Analysis that shows social impact relative to industry norms and baseline metrics has the most credibility Demonstrating why a portfolio company has superior social potential relative to

peers, not in absolute terms However, sourcing data about private comparables to do a relative analysis will

be a challenge

Quantifying social impact received mixed reviews in terms of value and ability to measure Absolute dollar value versus “score”

Linking Insights to Fulcrum’s Priorities Fulcrum’s priority is to quantify impact in terms of dollars

Need to communicate with investors Looking for corresponding value to financial return Strong preference for quantitative data

Impact on what? Utilize first insight and identify Fulcrum’s values Create strategic focus on existing core competency or develop a competency Trade offs between impact goals requires clear priorities Universe of potential impact is so broad it is difficult to measure

Sara Olson,SVT Group

“You have to measure what is important to your client, any metric must have meaning for them.”

Brian Dunn, Aquillian Investments

“We have to choose between solar panel companies focused on fair labor standards or focused on toxics recycling. Both are important goals but which matters most to us now?”

Fulcrum’s Social Impact Focus Fulcrum Fund has identified three main areas to focus the

Social Impact of portfolio companies

Product – the impact product / service

Environmental – sustainable operations

Community – employee practices, donations, etc.

Measuring Impact on Fulcrum’s Focus Identifying expected results from reaching general goals

Indicators of success Measurable outcomes Baseline comparisons

Deciding on specific metrics Assigning dollar value to each outcome Incorporate Fulcrum’s existing portfolio metrics Linking to established and accepted measurements

“Where there’s smoke, there’s fire.”

Detailed Metrics Product Impacts

Social value of access to care in previously underserved areas Value of one additional Dr. visit per year Value of availability of medical consultation Value of hospital care being closer (a $ per mile closer calculation) Value of primary physician being closer ($ per mile or $ per increased visit) Value of reducing costs to Medicare Value of in home care v. hospital care

Social value of product impact Increased mobility Social value of longer life Social value of higher quality life Novel products that are increasing quality of life, but also lowering costs short term and long term

Social value created by product after patent period ends – option value potential

Environmental Impacts Reduction in carbon footprint

Use of environmentally sound transportation Increase in recycling/reduction in waste Sustainability of facilities construction and renovation Smart growth land use or redevelopment (infill)

Community Impacts Under employed population employees

Higher quality jobs/higher wages/better benefits than traditionally available Charitable/in-kind donations

Company by company Support for local civic activities

Fulcrum’s Metrics in Action

Rural Healthcare Facility providing 5 new physicians; 10 new nurses Population of 25,000 within service area

Within 75 mile radius from facility Provides general family practice, emergency

care, in-home nursing care $5,000,000 required investment

SIA Components Product: Improved access to healthcare Environmental: Better practices for travel Community: Contribution to local economy

Fulcrum Hypothetical Investment – Rural Healthcare Facility

Product Metrics – Rural Healthcare Public Health Service classifies counties as primary care shortage

areas if they have more than 3,000 persons per physician

Nationally, residents of the most rural counties have the:

Type of Market Deaths/100k Rate

Large central 886.8 0.89%Large fringe 834.5 0.83%Small 887.6 0.89%With city >10k 923.1 0.92%Without city >10k 936.1 0.94%

Fulcrum market - now 140.415Fulcrum market - potential 125.175Difference - Lives Saved 15.24

Average local salary $37,564

Implied Total Value - Year 1 $572,475

Highest death rates for children and young adults

Highest mortality from ischemic heart disease and suicide

Higher percents of adults with chronic health conditions

Highest obesity rates

Lowest Physician rates

Environmental Metrics Carbon emission reduction value - $7.75 per ton

Market price from range of carbon offset prices Asses Clinic Carbon Footprint

Clinic Emissions Energy, supplies, shipping, labs

Home visits by caregivers Employee commute

Identify carbon reduction areas High gas mileage vehicles for home visit staff Energy efficient appliances and lighting Paperless filing systems

Compare reduced emission rate with previous or standard carbon output and calculate value of carbon saved

Basic Carbon Analysys - Vehicle

Annual tons of carbon reduced per car 2.68Times social value of carbon per ton $7.75Equals social value per upgraded car per year $21Times number of cars in the fleet 15Total social value of upgrade $312

Total Predicted Carbon Value - Year 1 $312

Community Metrics Rural physicians are key young professionals

Various studies to analyze the economic impact of additional doctors in a rural community Additional jobs created Economic multiplier effect of doctor/nurses salaries

Summary of rural studies

Doeksen: Value of a Rural Doctor $1,718,530University of Minnesota $5,000,000Center for Rural Health Hazard $10,000,000National Center for Rural Health Professionals $1,589,500

Average Total Value - Year 1 $4,577,008

Total SROI of Investment Combine the various impacts Calculate total return on investment for

defensible period $$$ value SROI Value - Year 1

Product $572,475Environment $312Community $4,577,008Total Year 1 $5,149,795

Total Years 1-5 $25,748,974SROI 43%

Implementation Guidelines Focus on refining metrics

Envision a “desired state,” and work backward to find the statistics that will support that goal

Constantly monitor and update Unlike financial ROI, SIA will and should continue to evolve

Participate in industry consensus building SVT open source database of criteria being built

3rd party auditor to validate the calculated social impact Especially given the lack of transparency of the private

equity market Including direct conversations with portfolio companies

Powerful tool Absolute value Accurate cost benefit analysis Accountability

Difficult to implement Endlessly spreading ripples Separating impact from turbulence Non-dollar impacts

One step at a time Many people are working on the problem Creating database of metrics This is the start

Conclusion - Measuring Social Impact in $$$

Value Added to Client

Understanding of Competitive Landscape Difficult to approach potential competitors on what might be

considered a differentiating competency Expert insight

SIA structure best suited given Fulcrum’s goals New SIA in practice

Verifiable data to apply to portfolio companies immediately New contacts

Like-minded professionals with a vested interest in seeing Fulcrum succeed

Value to Students Understanding SIA field

Speaking with giants in the industry Learning about the many models for measuring Important and growing area of investing

Exploring early dollar valuation of SROI See how knowledge builds over time Joining debate over why and how to value Working to establishing standards

Mike got an internship!!!

“Just another brick in the wall.”

Questions???

Appendix

Project Scope - DetailContactsResources

Scope of Project / Timeline The Project was divided into three phases

Phase 1: Survey industry trends and standards for SIA Phase 2: Identify key metrics and refine existing SIA Phase 3: Analyze results of new SIA with applied to current

portfolio company

Week1 2 3 4 5 6 7 8 9 10 11 12

Phase 1Analyze FSIA and research industry standards

- Interview industry thought leaders- Online guidelines/ published methodology

Phase 2Identify relevant criteria, formalize methodology and modify FSIA

- Focus on healthcare relevant categories- Use respected data sources to create metrics

Phase 3Apply refined FSIA to Fulcrum portfolio

- Perennial Healthcare Holdings SIA- Compare to original analysis

FSIA = Fulcrum Social Impact Assessment

Project Scope - Detail Stage 1: Research and analysis of Fulcrum’s

current evaluation system. Step by step breakdown of Fulcrum’s screening

and forecasting system. Comparison of Fulcrum to industry best

practices. Analyze specific key metrics that are used by

social investors industry-wide Analysis of purpose and effectiveness of

Fulcrum’s evaluation. Identify specific key metrics that are applicable to

Fulcrum’s industry focus (e.g. rural or low income healthcare, clean tech)

Stage2: Suggestions for improvements. Identify key areas of improvement for evaluation

system in methodology and specific criteria. Suggest modifications to improve Fulcrum’s

social measurement accuracy and efficacy for specific criteria

Develop a methodology to approach social impact assessment that can be applied broadly

Stage 3: Application to an existing or potential Fulcrum investment Apply improved Fulcrum social evaluation to an

investment. Compare improved results with results from prior

Fulcrum evaluation system. Analyze the impact of improvements. Confirm applicability of evaluation to calculate a

total social impact value for Fulcrum’s fund

Additional: Consider organizations best suited to developing

and maintaining industry-wide social impact measures

Contacts Individual Interviews

Brian Dunn, Aquillian Investments Lloyd Kurtz, Nelson Capital Management Yvonne Lu, Long Life Clinic Network Sarah Olsen, SVT Group Jason Oppenheimer, Pax Water Beth Sirull, et al., Pacific Community Ventures Pierre Trevet, Innovest

Other firms – various individuals Acumen Fund Bay Area Equity Fund Good Capital REDF

Key Resources

GSVC website: http://socialvc.net/index.cfm?fuseaction=Page.viewPage&pageId=58 RISE Project: http://www.riseproject.org/ UNC: http://www.ccc.unc.edu/documents/cccDoubleBottomLine.ppt REDF: http://www.redf.org/resources-general.htm#sroi