indev308 class 5 - financing considerations for social enterprise

INDEV 308: Introduction to Social Entrepreneurship

Class 5 (Part 2): Financing Considerations for Social Enterprises

Monday, June 6, 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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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


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


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Features of Different Funding Instruments


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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


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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!


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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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!!


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


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


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


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


What did we learn?

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Next Week

•  Deliverable: Assessment of Business Potential (Part 5)

•  Readings

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