Nesta and (Social)Impact Investing

Presentation 26 November 2012

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• 14 year history of backing innovation in the UK

• research, programmes, investment, skills

• £300m endowment• registered charity, innovation for public

benefit

© Nesta Investment Management | Nesta Investment Management LLP is authorised and regulated by the Financial Services Authority

What is impact investment?

• An old idea: first building societies c1770• 2000 – 2010: access to capital for social sector• Our definition of impact investment is:

“investment with the primary goal of achieving positive outcomes for individuals, communities or society as a whole, and with a secondary goal of achieving financial returns for investors”

Source: Office for Budget Responsibility, 2011

Economically and culturally: we cannot afford business as usualPublic expenditure needs to rapidly reduce

But complex problems will be a drag on the public sector and the economy as a whole anyway

Source: UK Budget, 2012

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State

Citizen

SocialSector

PrivateEnterprise

© Nesta Investment Management | Nesta Investment Management LLP is authorised and regulated by the Financial Services Authority

Why does Nesta do work in this area?• Pressing need for social innovation

• Investment is needed to fund:– the creation of new social innovations;– to support their development and testing;– to scale up those innovations that work.

• Just like other innovation really

• Nesta has been working to build the field….

© Nesta Investment Management | Nesta Investment Management LLP is authorised and regulated by the Financial Services Authority

Our work in impact investment

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PrivateEnterprise

SocialSector

State

Citizen

Impact investment is a tool to drive social innovation, not the goal in itself

• Pressing social issues

• Reorganised public service markets and changing terms of trade with state

• Increased use of technology driving scale and margins

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Feast or famine? Either way, not a balanced diet

Seeing the impact in impact investing

Impact: the effect on an outcome that can be attributed to the output. Impact may be positive or negative, and through high quality evaluation can be quantified.

Impact risk: an assessment of the certainty that an output will lead to the stated impact. Our Standards of Evidence are used to assess impact risk.

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Output: a measurable unit of a product or a defined episode of service delivery directly produced by an investee’s activities.

Outcome: an observable, and measurable, change for an individual or organisation.

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Negative Neutral PositiveImpact Potential

Standards of Evidence for Impact Investm

ent

Low Im

pact Risk H

igh

Investing in what works….

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We invest in innovations

NII1 creates Public Benefit through its investment by:• Delivering impact• Reducing impact

risk• And growing output

(not shown here)

We won’t invest here

Some investments will underperform

Nesta Impact Investments 1

Type and focus Start-up and early growth finance for innovative social

ventures Investments in range c£150k - c£1m in any funding round

Target impact sectors Ageing well Learning and employability of children and young people Community sustainability

Target size £25m , first close October 2012 at £17.6m

Fund term Eight years + extensions

Investment period Four years

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Nesta Impact Investments: Investing for Public Benefit in the UK

Outcome-focused Inclusive Affordable Accessible Sustainable

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• We believe it is possible to meet the requirements of programme related investment whilst investing in a range of entities.

• We do not favour charities over companies or vice versa• We must see a commitment to each of the criteria above.

Investment Criteria

• Investing in social ventures:– whose products or services have a measurable effect on one of

our target outcomes;– with innovation, and often technology, at the core of their

product or service– with strong business models able to generate sustainable returns

on capital;– whose approach is scalable to meet a significant proportion of

the need and demand they address– with a strong management team capable of delivering on

ambitious plans.

© Nesta Investment Management | Nesta Investment Management LLP is authorised and regulated by the Financial Services Authority

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© Nesta Investment Management | Nesta Investment Management LLP is authorised and regulated by the Financial Services Authority

More information

www.nestainvestments.org.uk