mark sayer

Preparing Social Enterprises for

Investment

Mark Sayer - Director, IIX

October 16, 2013

Aldaba Theater, University of the Philippines

Quezon City, Philippines

Outline

Evolution of a Social Enterprise

Challenges/barriers to growth

Overcoming the barriers

Preparing SE’s for investment

A Case Study

Investment Facilitation

The IIX approach

Idea/pilot Small scale

operation

Growth stage:

raising capital

Stage of SE evolution

Emerging start up

SEs at idea and

pilot stage

Many successfully

launch and achieve

impact on a small

scale, proving the

concept

Relatively few

successfully

raise capital

and scale up

Evolution of a Social Enterprise

Challenges exist at each stage

Emerging start-ups

- at idea and pilot

stage

Successfully launch

and achieve impact

on a small scale,

proving the concept

Decide to pursue a

strategy for growth

and scale-up

Secure investment

barrier barrier Idea/pilot

Small scale

operation

Pre-investment

ready Raising capital

Many SEs reach small scale operation and are not pursuing further growth


barrier

Barriers can be overcome - with support

Prepare:

• Robust business plan & financial

projections

• Appropriate strategy for

approaching investors

• Clear evidence of social impact

• Strong investor pitch


Support needs

High risk of

success

Can operational

business survive

and grow?

How to I prepare? Secure investment


Small scale

operation Pre-investment


barrier

IIX’s structured pathway

Technical Assistance

(in the pre-investment stage)

Develop robust

business plan

Financial model

Clarify impact

Develop investment

terms

Prepare pitch

Pitch to Investors

Establish basic operations &

strategy

Operational

Start Up

Investment

facilitation

Investor Due

Diligence

Investment facilitation

3+

months

2-3

months 3-6

months

Key elements for investment readiness Business plan Financial model Draft Terms & valuation

Key areas to be covered

Executive summary

Business overview

Product/service description

Pricing and sales

Business model

Organization structure

Operations

Industry overview

Competitor landscape

Risk assessment

Implementation plan

Management team overview

Financial overview

Social & environmental impact

Investment terms

Uses and sources of funds

Key areas to be

covered

Consolidate historicals

(includes P&L, Balance

Sheet and Cash Flow

Statement)

Assumptions

Develop projections

(includes P&L, Balance

Sheet and Cash Flow

Statement)

Key areas to be covered

Overview of capital needs and uses of

funds

Proposed terms:

- If equity: valuation; proposed equity

share

- If debt: proposed interest rates and

terms

- If convertible note: proposed

interest rate, term and conversion

rights

Investor info.

Key areas to be

covered

Professional pitch

Due diligence information

Transaction documents

Cashflow

is most

important

Consider

various

options

Be prepared

Case Study: Technical Assistance for East Bali Cashews

IIX’s Assessment

Small scale operations with strong business case and proof of concept completed

Technical assistance required to engage with investors

Develop business plan to better reflect target market, market opportunity,

business overview, implementation plan, and management

Create financial model that reflects consolidated historical financials, current

performance, realistic assumptions, projections and capital structure

Conduct social impact assessment

Develop investment terms

East Bali Cashews (EBC) is a Bali based social enterprise which uses sustainable, eco-friendly

business practices to process unshelled cashews, package and sell them to the domestic and

international markets. It creates social impact by providing jobs especially to women who otherwise

had no income.

Case Study: How it worked Collaboration with a KKR & IIX’s sister entity, Shujog

Business plan Financial model Social impact assessment

IIX led the overall

process for developing

the business plan

Included 3-day field visit

Business plan

drafting tasks

Lead

KK

R

IIX

EB

C

Overall structure √

Business overview &

market opportunity √

Industry fundamentals √

Product description √

Competitive landscape √

SWOT √

Implementation plan √

Personnel √

Key partners & network √

Financial overview √

KKR led on drafting the

model with EBC & IIX

Shujog led the process

with EBC

Validation of draft model

during field visit

Financial model

drafting tasks

Lead

KK

R

IIX

EB

C

Consolidate historicals √

Validate assumptions √

Develop projections √ √

Overlay transaction

structure √

Social impact

assessment

tasks

Lead

KK

R

Shujo

g

EB

C

Review existing

documents √

Develop theory of

change √

Validate model with SE √

Input data; run

projections √

Develop summary √

Investment Facilitation


Investment facilitation

• Introductions / access to investors

• Negotiation strategy

• Professional advice on structuring

the deal

• Executing and moving forward

Su

pp

ort

need

s

Emerging start up

SEs at idea and

pilot stage

Successfully launch

and achieve impact

on a small scale,

proving the concept

Decide to pursue a

strategy for growth

and scale-up

Secure investment


Small scale

operation Pre-investment


barrier

Case Study: Investment Facilitation for East Bali Cashews

The Technical Assistance team outlined a range of financing options

Final structure: Stapled security

Equity investment coupled with a loan

The company required $300,000 of equity and $600,000 of debt

Post Technical Assistance, EBC has received commitments from 4 investors

Technical assistance team helped EBC in facilitating the transaction

IIX provides an end-to-end solution

Identify &

Screen SEs

Investor

Engagement

Transaction

management

Execute

deal

Post-

transaction

monitoring

• Arrange showcases for exposure to larger investor base

• Identify and introduce SE to Tier I investors with financial, social and strategic alignment

• Facilitate meetings with target investors

• Guide on appropriate deal structure

• Facilitate information sharing between investors

• Assist due diligence

• Help ensure mission protection is achieved through agreements

• Engage ecosystem partners (e.g., lawyers)

• Facilitate deal execution:

o Term sheet negotiation

o Subscription agreement

o Funding vehicle

• Remain engaged to provide advise and guidance on Social Impact and reporting to SE and Investors

• Assist in raising next round of capital

• Provide technical assistance :

o Clear business plan

o Concrete expansion plan with supporting financial model

o Concise and appealing investor presentation / elevator pitch

o Groom for Investor Engagement

Provide

Technical

Assistance

• Source and screen SE investment opportunities

• Evaluate SE investor readiness

• Provide feedback on gaps

Sta

ge

IIX

serv

ices

Sh

ujo

g

serv

ices

• Set up Impact Framework to structure social and environmental performance management

• Prepare impact projections for the SE to showcase to investors

• Shujog ACTS facility to fund technical assistance

• Perform Impact Assessment to quantify on-going impact

Success in Raising Capital for SEs – examples

• Country: Philippines • Sector: Vocational training for disadvantaged youth

• Country: India • Sector: Lending to micro & small enterprises

• Country: Cambodia • Sector: Clean energy for rural areas

• Country: India • Sector: Safe affordable drinking water

Concluding remarks

Most SE’s require support to scale their business and impact

Business plan, financial model and investment terms

Need for more intermediaries to provide technical assistance

and facilitate access to capital

External funding is often required to support technical assistance and investment readiness

There are investors out there who want to invest in businesses with a social mission

This document contains proprietary information of IIX and Shujog and is strictly confidential. It shall not be taken to constitute an offer for sale of securities in any jurisdiction. It is intended for your exclusive use to advance your discussions with IIX and Shujog regarding the content contained herein. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without IIX and Shujog’s prior written permission unless required by law.

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mark sayer

Business

scale uppage

social enterprises

coveredkey areas

balance sheet

months page

unshelled cashews

key elements

equity share