Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
-
Upload
ngoc-tran-b -
Category
Documents
-
view
223 -
download
0
Transcript of Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
1/33
VENTUREPHILANTHROPY
& IMPACTINVESTMENT
April 22, 2011
Prepared by:Ngoc Tran, Hai Vo, Clement Ng, Alvin Cheo
March 15th, 2012
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
2/33
Team Plus
Agenda
Social Purpose Organization market spectrum
Impact Investment The markets infrastructure
Portfolio Construction & Use of securities Investment return & Risk factors
Alignment of management team incentive (with case study)
Venture Philanthropy (VP)
Why venture Philanthropy? VP characteristics
Model of Engagement
How can PE Firms Help
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
3/33
Team Plus
Impact Investment
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
4/33
Team Plus
Social Investment spectrum
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
5/33
Team Plus
Under-developed Infrastructure
Transparentinvestment
opportunities
Assessable,credible &
comparableperformance data
Ratings agencies,syndicators,
clearinghouses,and other
necessary marketintermediaries
Co-investors
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
6/33
Team Plus
Portfolio Construction
Two-dimensional sector framework: businesssector vs impact objective
Impact can be delivered through processes orproducts
Processes : making part of companys missionhiring employees from a traditionally
underrepresented group
Products: providing affordable access to light forpeople who currently lack access to electricity
grids E.g. Products for BoP market
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
7/33Team Plus
Portfolio Construction
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
8/33Team Plus
Return: Financial return vs.Impact
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
9/33Team Plus
Use of investment instrument
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
10/33
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
11/33Team Plus
Risk factors in Impact Investing
Illiquidity and uncertainty around financial returnscited as biggest risks
Similar level of risk expected relative to traditionalinvestments
Risk events occurred in 7% of reported transactions
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
12/33Team Plus
Alignment of managementinterest What is the appropriate amount of compensation linked
directly to social and environmental performance?
Penalization and/or reward for the extent to which impacttargets are met?
Should incentives structure address short-term or long-termimpact performance, or both? The bonus is tied to short-term performance, while the carry is
determined by performance over a longer time frame.
How and by whom are social and environmental performancemetrics and targets defined? How can social andenvironmental performance be effectively monitored?
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
13/33Team Plus
Aureos Capitals Africa HealthFund
Impact measurement through targets:
Impact target A: 50% of people servedhave an average annual householdincome < $3,000 PPP
Impact target B: 70% of people servedhave an average annual income of lessthan $3,000 PPP
Impact target C: 15% of people servedhave an average annual income of lessthan $1,000 PPP
Compensation structure:The base carry is 15% for achieving thefinancial hurdle & adjusted upwardaccording to the achievement of one ormore of the three impact targets.
A is met, then the GP carry increases by5% from a base of 15% to a total of 20%.
The carry increases to 30% if impact targetA is surpassed AND either impact target Bor C is met
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
14/33Team Plus
Core Innovation Capital
Impact measurement:
An Impact Audit Committee determinessocial impact performance of GPs
action through the Impact Score
Impact score:
Portfolio-based score: 90%
Industry-based score: 10%
Compensation structure
Annual bonus: is paid to the GP in directproportion to the percentage of the totalImpact Score achieved.
20% carry interest:
90% of the carry is tied to financialperformance
the remaining 10% in directproportion to the percentage of thetotal Impact Score achieved.
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
15/33Team Plus
Analysis of impact-basedincentives
Criteria Areos Core Innovation
Amount of social impactliked compensation
Additional 15% of profitcan be earned if socialimpact is met
100% of bonus & 10% ofthe carry interest (2% ofprofit)
Penalization/reward forfailure/over-performanceto meet the social target
Penalization of 5%compared to normalcarry interest (20%) andadditional 10% for over-performance
No reward for over-performance but losepart of the incentive ifthe target is not met
Long-term versus short-term incentives
Long-term Both short-term & long-term
Metrics & measurements Quantitative metrics:defined by thepopulation impacted bythe investment
Use of Impact Score,determined by aninternal Impact AuditCommittee.
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
16/33Team Plus
What is Venture Philanthropy
A methodology thatworks to buildstronger social
purpose organizations(SPOs) by providingthem with bothfinancial and non-
financial support inorder to increase theirsocietal impact
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
17/33Team Plus
Venture Philanthropy 101
High
engagement
Tailored
Financing
Multi-year
support
Non-Financial
Support
Performance
measurement
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
18/33
Team Plus
Venture PhilanthropyComparison
Similaritieswith VC/PE
Proactive and highquality management
Clear objectives andtargets
Performance culture
Optimizing leverage
Long-term engagement
Differenceswith VC/PE
Expectation of returns
Incentives alignmentwith social impact
Deal Selection
Risk
Exit
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
19/33
Team Plus
Direct engagement
PE FirmSocial
PurposeOrganization
Hands-onengagementand financial
support
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
20/33
Team Plus
Analysis
When Why How
Firm would like towork locally,
potentially developinga long-term
relationship with SPOin community
Proximity to charitiesoffers in-kind benefits
like use of officespace, which can alsomake up for financial
constraints
Tap firmsprofessional network
for providers of probono and financial
support
Firm unable tocontribute muchcapital, such as
publicly listed firms,can help more with pro
bono services
Direct involvementfrom firm can attract
other funders,increasing impact andsharing financial costs
Identify localchampions at
regional offices whoare passionate about
local issues
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
21/33
Team Plus
Invest or Co-Invest with a VPO
PE FirmVPO
coordinatesassistance
SocialPurpose
Organization
Hands-onengageme
nt andfinancialsupport
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
22/33
Team Plus
Analysis
When Why How
Firm is lacking in-housesocial sector
knowledge and prefersto use a trusted
intermediary using a VPapproach
Contribute resourceswithout incurring
management costs,while reducing risk and
transaction costs
Choose VPO based onfirms criteria and
develop a long-termrelationship with aVPO, contributing
financial resources andpro-bono support
Co-invest with VPO
when the firm wantsgreaterfreedom in
terms of choosing whichSPOstoinvest in
Flexibility to outsource
bulk of work to VPO,who is an expert on the
subject or to investdirectly
Determine criteria for
VPOs or social sectorfocus for SPOs to invest
in
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
23/33
Team Plus
Found or Co-found a separateVPO
PE Firm
New VPOSocial
PurposeOrganization
PossiblePartners
Hands-onengageme
nt andfinancialsupport
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
24/33
Team Plus
Analysis
When Why How
Firm is able to make asignificant commitment of
time and resource
Looking to do somethingbigger, with unique visibility,involving the firm as a team
Add a dedicated VP arm toPE firm to complementexisting business taking
care to make clearseparations between
mission, remunerationschemes, return
expectations and investmentprocess of both entities
Firm has a corporateculture that will be
conducive to larger scaleinvolvement
Grow the VP marketthrough hands-on
philanthropy engagement
Pool resources in a newinitiative to draw diverse
resources and achievegreater scale
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
25/33
Team Plus
Why? Pressing environmental &social issues
Environmental & socialissues are receivingincreased attention fromVC and PE communities
Responsible investing
Sustainable returns
Investors pressure
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
26/33
Team Plus
Why? Desire to give back!
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
27/33
Team Plus
Development of skills
Judgment
Resilience
Social
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
28/33
Team Plus
Most efficient way to the biggestimpact
VP is the mostefficient way tomake thebiggest social
impact on acause they feelstrongly about
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
29/33
Team Plus
How can PE firms Help
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
30/33
Team Plus
Providing Financial Capital
Funding from abudget
Foundation receives
a percentage Matching employee
donations
Host fundraisingevents and volunteerdays
Partner with others
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
31/33
Team Plus
Providingprofessionalnetworks
Strategic advisorycompanies,accountant, lawyer
Reach and raisefunds from eachother
Influence portfolio
companies
Providing Social Capital
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
32/33
Team Plus
Providing Intellectual Capital
Due diligence
Leverage functionalgroups
Draft business plans Serve on investment
committee board
Mentoring charitymanagement
Aiding in the event ofM&A
-
7/31/2019 Group 6 Presentation - Impact Investing & Venture Philanthropy (1)
33/33
Team Plus
Questions?