entr4800 class 7 - impact investing and social capital markets

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ENTR 4800: Social Entrepreneurship

Class 7: Impact Investing and Social Capital Markets

Monday, November 1, 2010

Instructors:Norm Tasevski ([email protected]) Karim Harji ([email protected])

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Agenda

• Kiva.org• What did we learn – Last Week?• Overview of Impact Investing & Social Capital

Markets• Activity: In the Investor’s Chair• What did we learn – Today?• Next week

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Last Week – What did we learn?

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So, what are we talking about?

Social Finance Impact Investing

Socially Responsible Investing

Social Investing

Mission-Driven InvestingSustainable & 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

TRUE or FALSE?

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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

FFF

F

F

F

F

http://nonprofitfinancefund.org/files/docs/2010/NPQSpring05.pdf


The Spectrum of Markets

FINANCIAL CAPITALMARKETS

Financial Return

Financial Performance Measurement

• Debt• Equity

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

Trading Systems)

About 5%

FINANCIALCAPITALMARKETS

$50 Trillion

SOCIALLY RESPONSIBLE

INVESTINGSocial Screening and Shareholder Advocacy

$7 Trillion

RETURN

MEASUREMENT

PLATFORMS

INVESTMENTTYPE

AVERAGETRANSACTION

COST

MARKET SIZE

IMPACT INVESTINGMARKETS

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

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Social Finance Continuum

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

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The Social Capital Market

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

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Social Finance Across Canada

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Serge LeVert Chiasson

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Cash

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 riskHigher risk Lower risk Guarantee

s

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

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MORE DEBT-LIKE

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 REPLICATIONEXIT

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

http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestment.aspx


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 COMMUNITYCAPITAL(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

http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestment.aspx

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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

Who will build (and pay) for these intermediaries?

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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!

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

• Committed to responsible investing

• 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 operational / admin. support

Ottawa 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 Innovation

• Intermediary that helped to align the interests of the groups

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

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Break

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Exercise: In The Investor’s Chair

• Which business is suited to which type of investment?

• Which business would you invest in?• 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