Venturesome - Access to Capital 0911

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Venturesome - Access to capital

Paul Cheng

Investment Manager, Venturesome

The text in this document may be reproduced free of charge providing that it is reproduced accurately and not used in a misleading context. The

material must be acknowledged as Venturesome copyright and the title of the document specified.

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Income/revenue is distinct from capital

  Income / revenue

  covers the costs of expenditure of ongoing work

(service provision, projects etc)

  suppliers of income = PURCHASERS of your work

  Capital

  money and other resources that enable you to deliver 

your service / project / work

  capital funders = INVESTORS in your organisation

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Charities need a capital base

  Capital base is required for:

1. Working capital

2. Financial resilience

3. Growth or development

  Few charities are able to create a surplus that can

be set aside as reserves

  Emerging supply of capital for charities and socialenterprise

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Mad money – the irrational world of charity finance

  Surpluses are bad

  Cash is restricted

  Price does not have to cover costs

  Marginal costs of growth can be ignored  Overhead is a luxury and a distraction

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The social investment market: risk / return

Low Financial Risk

Impac t In ves tmen t 

Property / working capital Development capital 

C o m me rc ia l  re t u r n s 

VS Bridging

Fund

VS Development

Fund

Classical grant making

(-100%)

Reduced financial

return

compensated by

social impact

High Financial Risk

Loss of capital

compensated by

social impact

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Venturesome provides capital funding

  Since 2002, we have offered £16m to over 200

small- and medium-sized charities

  Provide capital investment in the form of unsecured

loans, underwriting and equity-like investments  To date, 96% of funds have been recycled, to be

reinvested

  Nearly nine out of ten organisations have achieved

or outperformed initial capacity building aims

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Helping individual charities – what we offer 

1.  Working capital to cover cash flow fluctuations

2.  Development capital – ‘hard’ and ‘soft’

3.  Pre-funding of fundraising – bridging loan

4.  Underwriting – standby facilities

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Main financial mechanisms used by Venturesome

  Underwriting / standby facilities

  undertaking to provide financing for a particular project if 

budgeted income does not materialise

  Unsecured loans

  No security required on the charity’s assets

  Equity and quasi-equity

  the return the funder receives is linked to the financialsuccess of the venture

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Matching financial mechanisms to funding needs

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Matching financial mechanisms to funding needs

Secured loan 

Standby

Facility 

Overdraft Unsecured

Loan 

Patient

Capital Quasi-equity 

Equity 

Grant 

HIGH

CHANCE OFREPAYMENT 

LOW

CHANCE OFREPAYMENT 

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Matching financial mechanisms to funding needs

Secured loan 

Standby

Facility 

Overdraft Unsecured

Loan 

Patient

Capital Quasi-equity 

Equity 

Grant 

HIGH

CHANCE OFREPAYMENT 

LOW

CHANCE OFREPAYMENT 

LOW RISK  HIGH RISK Property/Asset

purchase

(mortgage) Cashflow

bridging  Pre-funding

Capital

Fundraising Higher risk

working

capital

Development

Capital 

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Matching financial mechanisms to funding needs

Secured loan 

Standby

Facility 

Overdraft Unsecured

Loan 

Patient

Capital Quasi-equity 

Equity 

Grant 

HIGH

CHANCE OFREPAYMENT 

LOW

CHANCE OFREPAYMENT 

LOW RISK  HIGH RISK Property/Asset

purchase

(mortgage)

Cashflow

bridgingPre-funding

Capital

Fundraising Higher risk

working

capital)

Development

Capital 

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Matching financial mechanisms to funding needs

Unsecured

Loan

Overdraft

Quasi-equity

Equity

Grant

Pre-funding

capital

fundraising

Higher risk

working capitalDevelopment

capital

Standby

Facility

LOW RISK HIGHRISK 

Property/Asset

purchase(mortgage)

Appropriate Funding

(correlation)

Patient

Capital

Secured loan

Cashflow

bridging

LOW

CHANCE OFREPAYMENT

HIGH

CHANCE OFREPAYMENT

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Charity or business?

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What is

“social enterprise”?

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Model 1 

“Profit Generator”

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Model 2 

“Trade off financial and social returns”

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Model 3 

“Lock-step”

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The investor universe

+ 8%

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The investor universe

+ 8%

Market-rate return

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The investor universe

+ 8%0%

Market-rate return

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The investor universe

+ 8%0%

Market-rate returnCapital-protected

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The investor universe

- 100% + 8%0%

Capital-protected Market-rate return

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The investor universe

- 100% + 8%0%

Capital-protected Market-rate returnGrant-makers

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The investor universe

- 100% + 8%0%

Capital-protected Market-rate returnGrant-makers

- 15%

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The investor universe

- 100% + 8%0%

Capital-protected Market-rate returnGrant-makers

- 15%

?

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Ingredients for success

IDEAS

PEOPLE FINANCE

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Effectiveness vs Efficiency

QUALITY

ACCESS COST

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The challenges to unlocking capital

  Changing the grant-making mindset

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The challenges to unlocking capital

  Changing the grant-making mindset

  Creating guarantee funds

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The challenges to unlocking capital

  Changing the grant-making mindset

  Creating guarantee funds

  Using subordinated debt

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The challenges to unlocking capital

  Changing the grant-making mindset

  Creating guarantee funds

  Using subordinated debt

  Creating retail social investment products

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The challenges to unlocking capital

  Changing the grant-making mindset

  Creating guarantee funds

  Using subordinated debt

  Creating retail social investment products  Exploring the negative return spectrum

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The challenges to unlocking capital

  Changing the grant-making mindset

  Creating guarantee funds

  Using subordinated debt

  Creating retail social investment products  Exploring the negative return spectrum

The emergence of a new financial services

industry around social enterprises

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Helps manage timing of income/expenditure

1.  Working capital

Beat  On average income matched expenditure, but income typically ‘lumpy’

while expenditure remained fixed

  Venturesome underwrote reserves using a standby facility to help

manage uncertainty

St Peters Church  Undertaking major refurbishment work requiring £1.6m fundraising

campaign  Helped structure fundraising approach to enable the church to proceed

with its plans, providing £200,000 to pay builders ahead of futurefundraising income

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Helps manage rainy days

2.  Financial resilience  

Bedford Creative Arts

  Local educational charity had to move offices at short notice, at the same

time as experiencing uncertainty around key funding streams

  Venturesome provided a £20,000 financial safety net for a year to help

the charity through uncertain times

Global Links Initiative

  Small charity managing international network connecting social

entrepreneurs

  Venturesome provided a financial bridge to legacy income, protecting thework while future plans were reviewed

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Enables investment in your organisation

3.  Growth or development

Book Aid International

  The charity wished to invest in a door-to-door fundraising campaign to

diversify income streams, but couldn’t risk all its reserves in doing so

  Venturesome underwrote reserves enabling the charity to investsuccessfully

Charity Technology Trust (CTT)

  Transitioning from grant-dependency to a more diversified income,

including trading

  Provided £50,000 of equity-like investment, with Venturesome and CTTsharing the risk associated with the new trading arm

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Contact details:

Paul Cheng

pcheng@cafonline.org

03000 123 256

www.venturesome.org