UK Social Innovation Policy Tour: Social Finance

March 28th – April 2nd 2009

Key Takeaways

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Contents

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1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

Contents

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1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

Tour Organizers

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The primary aim of SiG is to encourage effective methods of addressing social problems on a national scale.

The activities of SiG serve to facilitate the exploration of structural, institutional and systemic evolution in order to promote broad system change.

A national collaboration to fast-track Canada’s adoption of social finance.

Part broker, part incubator, part think-tank, part consultancy, Volans works globally with entrepreneurs, businesses, investors and governments to develop and scale innovative solutions to social and environmental challenges..

Volans is based in London and Singapore. www.volans.com

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Canadian Participants

Nino AntadzePhD candidate, School of Planning, University of Waterloo

Dr. Carin HolroydDepartment of Political Science, University of Waterloo

Richard BlicksteadCEO Wellesley Institute

Jaqueline KoernerChair, EcoTrust Canada

Tim BrodheadPresident and CEO, J.W. McConnell Family Foundation

Bayla KolkAssociate Assistant Deputy Minister, Income Security and Social Development, HRSDC

Lee Davis President and CEO VanCity Capital

Sean MooreSiG Fellow

Tim DraminExecutive Director, SiG National

Tony Nimeh, MDConsultant

Patricia ElseDirector, Grant Operations, Ontario Trillium Foundation

Joanna ReynoldsProgram Coordinator, Causeway SiG National

Al EtmanskiPresident and Co-Founder PLAN

Judy RogersChair, 2010 Legacies Now Board of Directors

Don FairbairnPresident, DCF Consulting

Dr. Frances WestleyDirector,SiG Waterloo, J.W.McConnell Chair in Social Innovation

Lois FineDirector of Finance, YWCA

Andrew Wharton Special Advisor, Disability Services, BC

Gordon FloydExecutive Director and CEO, Children’s Mental Health Ontario

Faye WightmanPresident and CEO Vancouver Foundation

Allyson HewittDirector, Social Entrepreneurship, MaRS, SiG@MaRS

Donna Thompson– tour observer

Special Advisor, PLAN Institute

Connecting Ideas and Concepts

Culture of Social Innovation

Public PolicySocial Finance

Social Entrepreneurship

Social Enterprise

Key Definitions

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• An organization or venture (within an organization) that advances a social mission through entrepreneurial, earned income strategies. ~Social Enterprise Alliance

Social

Enterprise

• Social innovation is a complex process of introducing products, processes or programs that profoundly change the basic routines, resource and authority flows or beliefs of the social system in which they arise. Such successful social innovations have durability and broad impact. ~ Dr. Frances Westley

Social

Innovation

• An entrepreneur who engages in business seeking both financial and social return ~ PFC (Philanthropic Foundations Canada)

Social Entrepreneurship

Social Finance is the flow of financial capital to human need uses:

• Affordable Housing• Social Enterprise• Support for working families• Health & Home Care• Community Development• Social Economy• Clean Technology• Microfinance• Fair Trade• Green Building• Education• Bottom of the Pyramid

Key Definitions – Social Finance

Charity and Non-profit

GovernmentBusiness

Hybrid Space

source: market sector listing adapted from www.xigi.net)

Contents

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1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

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Venturesome

3 models of social enterprise1. Profit Generator – goal to get profit and give some (or all) away to charity (Patagonia)

2. Trade Off Financial and Social Returns - activity has social impact, but needs to trade off between financial and social impact (ie, The Hoxton)

3. Lock-Step – no trade- off between social and financial impact - if one side goes down, the whole organisation does (ie. community wind farms)

Creating Social Finance Solutions

- 100% + 8%0%

Capital-protected Market-rate returnGrant-makers- 15%

Courtesy of Paul Cheng at Venturesome

Venturesome is not a bank, nor a granting organisation - it providesunderwriting/stand-by facilities, unsecured loans and equity and quasi-equity

• Responding to issues in the third sector – charities are undercapitalized with weak balance sheets and a ‘donor’ culture rather than an ‘investor’ culture

• Provided £12m to 200 organisations, with a default rate of less than 5%• Current fund is £10m with banks, foundations and HNW individual investors• Exploring the ‘negative return’ spectrum

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Bridges Ventures

• Currently running 2 Community Venture Funds (Bridges CDV1 is a £40m fundand Bridges CDV2 is a £75m fund) with investments focussed on delivering a financial and social return.

• Investment focussed on under-invested inner city areas of London

• Reports to investors include the social impact as well as the financial and economic progress of investments

• Exits are flexible – trade sale, float or manager buy-back

• November 2008 launched the £4.25m Social Entrepreneurs Fund – a charitable trust which invests in scalable social enterprises delivering high social impact

Social Venture Capital Models

Portfolio Company Example – THE GYM• No-frills, clean gyms with good equipment, open 24 hr/day•Located in lower income communities• £14.99/month with no contracts•Social benefit (providing health benefits to lower income communities) and financial benefit to investors (company is expanding)

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The Role of BanksTriodos Bank Opportunity Fund

• Triodos Bank only finances enterprises with which add social, environmental and cultural value - using finance and capital to fuel social change

• €3.5 Bn with operations in 5 EU countries

• Involved in the Global Alliance for Banking on Values Banking

• Triodos’ Opportunity Fund looks to return a profit to LPs through investment in social enterprises – providing both funding and support as they grow

The biggest problem is deal flow....

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Catalyst and ClearlySo

• Catalyst has 4 areas of activity; Fund Management, Information and Research, Advisory Services and Events.

• ClearlySo is an online marketplace for social business, enterprise and investment.

• In creating a legal structure for a social enterprise be critical of models such as CICs and aware of what would work in Canada based on its unique culture

• Similar to mainstream VC – big returns are needed in some investments to offset the risk and inevitable losses in others

Financing Social Businesses

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It's a business that integrates commercial objectives (growth, profits) with a social, ethical or environmental one

Looking for scale and high return – is this possible in Canada?

Social Finance Support Systems

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The UK marketplace also contains many social finance INTERMEDIARIES

Social Enterprise

Growth

Research

GuidestarAshoka

Investment Bank

Social Finance Ltd

Corporate Finance

Catalyst

Legal Structures

CIC’s

What systems exist in Canada?

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Social Finance Ltd.

• Action- research projects focused on applying tools and expertise of investment banking and other financial sectors to social finance and the third sector

Projects include:

o Social Investment Bank - per recommendations from the Commission on Unclaimed Assets (approx value of Canadian unclaimed assets is $300m)

o Savings/loan Vehicle for those with disabilities (like the RDSP in Canada)

o Social Impact Bond (financial derivative) ie. looking at ways of reducing reoffender rates and calculating the value in social and financial terms

Building & Applying Financial Tools

Lessons from UK: Strategic conversations need to be nonpartisan to remain relevant in the long term

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Mission Based InvestmentGuidestar International and F. B. Heron Foundation

• F. B. Heron Foundation is a $350m foundation where the corpus is put into action by deploying the endowment into mission related investment without conceding returns

• Limitations exist in Canada on missions based investing

• Guidestar International is an online service which provides details reports on CSOs (civil society organisations) to improve their visibility to those who support their work

• Create competition for the philanthropic dollar (disappointing to see no other foundations making a play for Buffet’s gift to the Gates Foundation)

• Business model involves partnering with foundations and other grant-makers

• Some of the leg-work completed in Canada and system uploaded with CRA data – would cost $250K/yr to run it

Guidestar International is looking for partnerships

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BWB LLP

• Under British Law tax relief exists for charities, but not social enterprises• Need new kind of company- Community Interest Company (CIC)• 2,628 CICs established in 3.5 years

• Founder control of social enterprise• Asset-Lock which prevents privatization• Allows for financing through debt (secured or unsecured) or equity (share issuance

permitted with dividend cap with a maximum annual dividend, 5% above base rate, total 35% net distributable profits)

• Allows for payment to directors

• Explore tax break effects in to encouraging investment (charities and high growth companies receive this consideration)

• Only CICs limited by shares can use debt AND equity – those limited by guarantee can only use debt financing

Building Speciality Legal Structures for Social Enterprises

Key Elements of CIC legal structures

Issues that need to be addressed to improve CIC structures

Legal Structure Basics

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What is an appropriate legal structure?

What is CIC?

Each model has its pros and cons...what is right for Canada?

What is an L3C?

What is the Community Enterprise Act?

Community interest companies (CIC) are a type of limited company designed specifically for those wishing to operate for the benefit of the community rather than for benefit of owners of the company..

CICs can be limited by shares, or by guarantee, and will have a statutory “Asset Lock” to prevent the assets and profits being distributed, except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes, or transferred to another asset-locked organisation, such as another CIC or charity.

L3C'sare low-profit limited liability corporations, which function via a business modality that is a hybrid legal structure combining the financial advantages of the limited liability company, an LLC, with the social advantages of a non-profit entity. An L3C is run like a regular business and is profitable. However, unlike a for-profit business, the primary focus of the L3C is not to make money, but to achieve socially beneficial aims, with profit making as a secondary goal.

Sector leaders in Canada are exploring the creation of a legal structure, learning from CIC and L3C models.

Financial Stakeholders in Canada

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SIO & SRI Mutual Funds

High Net Worth Individuals

Federal and Provincial Government

Private Companies

Credit Unions

Insurance Companies

Pension Funds

Mainstream Banks

How do we engage and connect the individuals in these stakeholder groups? What is he role of crowd sourcing and micro-investors?

FoundationsCharitable

Endowments

Financial Stakeholders

Contents

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1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

The Third Sector includes voluntary and community groups, social enterprises, charities, cooperatives and mutuals

Enabling Public Policy

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The UK has an OFFICE OF THE THIRD SECTOR

The UK civil society contains many successful ADVOCATES and ASSOCIATIONS

• Created in 2006 • Sits within Cabinet with its own minister, Kevin Brenn an• Pros and Cons to placement in central government

• Social Enterprise Coalition provides research and awareness programs and is proactively developing relationships with both political parties

• The National Council for Voluntary Organisations (NCVO) provides the support and voice for the voluntary and community sector

Which government body, advocates and associations do we need in Canada?

Four key aims1.Campaigning and Empowerment, especially those at risk of social exclusion2.Strengthening Communities, providing funding and convening people3.Transforming public service delivery, design, innovation and campaigning4.Enabling the growth and development of social enterprises

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Office of the Third Sector

• The ‘Third Sector’ includes charities, social enterprises, voluntary organisations - there are 135,000 registered charities and 55,000 social enterprises

• Established in 2006, The Office of the Third Sector is located in Cabinet Office, has its own minister, Kevin Brennan, and £550m spending review package

• Proximity to central government has its advantages (high profile, access to key players) and disadvantages

• Right to Request’ program where public service professionals can start social enterprises and guaranteed a 3-5 year government contract

Public Policy in the UK

Recommendation from the UK: be in central government, have a tie to treasury and balance policy development with programme delivery

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Rosemary Mitchell – Futurebuilders

• Set up by Home Office with funds sitting partially in this office and partially in the treasury – commercial agreement with a fund manager

• +300 investments, mostly healthcare, education and children

• In addition to funding, also provides professional support (finances, contracts...)

• Recently awarded £100m DOH fund contract in consortium with Partnerships UK

Government ProgramsFunding services

What role should government play in creating social capital markets?

Futurebuilders provides loans and grants to the Third Sector £250m fund

3 investment KPIs1. # of public service delivery contracts2. funding dispersal within 2 years3. customer satisfaction (2008 rating 85%)

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Success Snapshot- Homelessness

Community and Local Government (CLG)

• Government's Housing initiatives include help with home ownership, reducing homelessness and tackling anti-social behaviour

• Key is PREVENTION - from which ideas and initiatives emerge

• Success measured against targets set in 2003

Metric 2003 2008

Statutory homeless (new cases/yr) 137,000 57,000

Temporary accommodation backlog 100,000 67,000

Rough sleepers 1500 499

What kind of initiatives drive these kind of results?

Contents

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1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

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Culture and Enabling Environment

What programs are needed in Canada?

Program Type UK examples CAN examples

Teaching social entrepreneurship

School for Social Entrepreneurs (SSE)

ENP , MaRS Entrepreneurship 101,

Supporting entrepreneurs Unltd. MaRS, George Brown

Galvanizing social innovative thinking

Challenge fund McConnell, CSI, SiG members

Public awareness Social Enterprise Coalition (SEC) Ambassadors

Social Entrepreneurship Summit

Celebrations Social Enterprise Week SES, ENP Awards

Youth engagement Make your Mark with a Tenner

Canadian Youth Business Foundation

Support and networks The Hub, SEC Causeway

Mentorship SSE MaRS

Paired research and network support

The Young Foundation LaunchPad

Waterloo, Carleton 3Ci, UBS CSSI,

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Social Enterprise Coalition

• Language of social enterprise still contested – golden thread is that an organisation trades for a social/environmental purpose

• Formed in 2003, today 20 staff and £2m turnoverAmbassadors and ‘Voice’ Conference

• Key programmes include Social Enterprise

Advocacy and Awareness ProgramsUniting the networks to form a coalition

IDEA! Evolve current social enterprise networks into a structured coalition

Social Enterprise Coalition has 3 key activities1. Awareness/Promotion: media, events and ambassador program

2. Best Practice Research: case studies, ‘how to’ guides and training materials

3. Inform Policy Agenda: advocating for a strong culture for social enterprise

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Social InnovationPublic services for public benefitNESTA

• NESTA (National Endowment for Science Technology and the Arts) – endowment of £300m focussed on ‘radical’ innovation (rather than ‘incremental’ innovation)

• Looking at the incentives that can motivate radical change – ie challenge grants

• New initiative is ‘The Lab’ which fosters innovation in public service by bringing together people from the public, private and third sectors to collaborate on practical projects

What programs from NESTA work and should be replicated in Canada?What opportunities exist?

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Unltd.

• Unltd. is a support program from social entrepreneurs (not enterprises) and founded with a £100m endowment fund from Millennium Awards Trust

• Works with 1000+ social entrepreneurs and spend £7.5m per year• 3I’s : INVEST in INDIVIDUALS with IDEA

Provides 3 different levels of awards:• L1: £500 - £5K – focuses on first steps building entrepreneurial capacity• L2: up to £15K - focuses on freeing up individuals’ time to develop project • L3: up to £20K - focuses on replication and scaling up

• Partnership with Bridges Ventures connected to investment readiness

• Youth programs include Unltd. Sport Relief (funding young people to develop ideas to reduce social conflict) which work because of freedom & structure, trust the people and run by young people for young people

• Unltd. World –www.unltdworld.com - 9000 members (3/4 active) includes real-time data mapping, community building and marketplace

Supporting EntrepreneursEncouraging social entrepreneurship

Unltd. is rolling out globally – is Canada interested in a partnership?

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The Young Foundation

• Focussed on building the field of social innovation –systematically encouraging it by developing ideas, working with local agencies and developing scale strategies

• Founded by Mel Young ‘success rate of social enterprises is 1/10’

• Programs include:

• Health Launchpad – provides funding and support for health related innovation (in partnership with NESTA)

• Language Line – providing translation services for public service

• Plan my Care – provides help to the elderly in accessing programs designed specially for them

Innovation FoundationApplied Research and Incubation

What programs can be replicated in Canada?

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Teaching Social Entrepreneurship

School for Social Entrepreneurs

• School for Social Entrepreneurs provides training to social entrepreneurs – currently approx 40 students with another 7 schools in the UK

• Focus on small group action-learning and runs once a week for a year with courses including ‘expert witness’, ‘project visit’ and ‘peer learning’

• Cost is £8500 with bursaries and subsidies available

Charles Takawirawww.healthcarelink.org

A not-for-profit, community investment organisation which recovers and redistributes surplus medical supplies and equipment ,with a dedication to a three-fold mission of

environmental stewardship, job opportunity creation for the

marginalised, and improving health in Africa.

Max Graefwww.radioactive.org.uk

RadioActive provides complete technical services, equipment and training to communities and NGOs

around the world, to help them build and run community radio stations and recording studios

Entrepreneurs have the ability to see opportunity and drive change

Contents

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1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

Outreach Engagement Strategy

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What kind of Outreach is necessary?

Causeway

All Policy Tour

Participants

Through outreach we can educate investors & policy makers on national and regional levels

ON

BC

Research

Financial Stakeholder Strategy

Public Policy Strategy

Program Strategy

Overall Communication Strategy

Capital Market InstrumentsSocial Impact BondsSocial Capital Funds

Study Tour Actions - Finance

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Enabling Infrastructure Feasibility Studies

finance services, back office for funds

Legal Structure Working Grpexploring CIC and L3C models

Funder Communities and SiG

Causeway and Other Regional Actors

BC Centre for social enterprise

Key Step: Getting tour participants involved in ACTION

Regulatory Reform Working Grpfoundation reforms, tax policy

Casuseway Working Group

Social Capital Pilot FundResilient Capital BC

OSVC, ON

Policy Tour Participants

Structure and ReformTwo big issues for working groups to tackle

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Issues to Address:

Regulatory Reform (Foundations and Taxes)•Revising and advocating for improvement of regulations for foundations

• CRA and PRI guidelines for foundations

• Exploring how tax levers might support investment in social innovation and social enterprises

Legal Structure• Designing and advocating for a legal structure for Canada

• Pros and cons of CIC and LC3• Provincial and Federal actions need to be activated

Key Step: Convene a high profile working group

Study Tour Actions – PolicyFinding the right innovation policy catalyst

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Social Innovation Public Policy Catalyst Working Group

Self Organized - Policy coalitions targeted by ON and BC

Federal: Sean Moore and Causeway

Provincial: BC (Al)ON (Allyson Hewitt)

Interested Tour Delegates

Sean Moore, SiG National (Tim Draimin), Al

Etmanski

Key Step: Getting tour delegates involved in ACTION

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Policy Catalyst Working GroupReflecting public benefit through government

Key Issues to Address

What should a ‘government body’ cover? • How should public benefit services be reflected in government•Focus Innovation and not cost-cutting

What is an appropriate policy catalyst?•Creation of a social innovation ministry (Office of the Third Sector)?•Creation of a social innovation endowment (NESTA)?

What should a ‘NESTA-like’ organisation do? •Canada-wide knowledge management and research• Funding for social innovation projects•Challenge Grant Programs

Should the catalyst be provincial, federal or both?Is there a role for municipal leadership?

Study Tour Action - Culture and Enabling Environment

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Supporting Enabling Activities in Ontario

Unltd. Canada Feasibility Study

Challenge Grants

Ontario Trillium Foundation

SiG@MaRS

TBD

Uniting the Networks TBD

SSE Feasibility Study

TBD

Key Step: Getting tour delegates involved in ACTION

UK Social Innovation Policy Tour

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For more information on Volans Social Innovation Tours, please contact

Charmian Love

charmian@volans.com