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ENTR 4800: Social Entrepreneurship
Class 7: Impact Investing and Social Capital Markets
Monday, November 1, 2010
Instructors:Norm Tasevski ([email protected]) Karim Harji ([email protected])
© Norm Tasevski & Karim Harji
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© Norm Tasevski & Karim Harji
Agenda
• Kiva.org• What did we learn – Last Week?• Overview of Impact Investing & Social Capital
Markets• Activity: In the Investor’s Chair• What did we learn – Today?• Next week
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© Norm Tasevski & Karim Harji
Last Week – What did we learn?
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So, what are we talking about?
Social Finance Impact Investing
Socially Responsible Investing
Social Investing
Mission-Driven InvestingSustainable & Responsible Investing
Blended Value
Value-Based Investing
Mission-Related Investing
Ethical Investing
Responsible Investing
Program-Related Investing
Triple-Bottom-Line
Environmental, Social and Governance Screening
Donations
Charitable Giving
Venture Philanthropy
© Norm Tasevski & Karim Harji
The Looking-Glass World of Nonprofit Money
TRUE or FALSE?
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• Price covers cost and eventually produces profits, or else the business folds
Full article available at: http://nonprofitfinancefund.org/files/docs/2010/NPQSpring05.pdf
• The consumer buys the product
• Cash is liquid • Price is determined by producers’ supply and
consumers’ ability and willingness to pay• Any profits will drop to the bottom line and are then
available for enlarging or improving the business
• Investment in infrastructure during growth is necessary for efficiency and profitability
• Overhead is a regular cost of doing business, and varies with the business type and stage of development
FFF
F
F
F
F
© Norm Tasevski & Karim Harji
The Spectrum of Markets
FINANCIAL CAPITALMARKETS
Financial Return
Financial Performance Measurement
• Debt• Equity
• Retail (mutual funds, online brokers)• Institutional (Exchanges, Alternative
Trading Systems)
About 5%
FINANCIALCAPITALMARKETS
$50 Trillion
SOCIALLY RESPONSIBLE
INVESTINGSocial Screening and Shareholder Advocacy
$7 Trillion
RETURN
MEASUREMENT
PLATFORMS
INVESTMENTTYPE
AVERAGETRANSACTION
COST
MARKET SIZE
IMPACT INVESTINGMARKETS
Financial + Social Return
Financial + Social Measurement
• Debt• Equity
• Retail (online micro finance)• Institutional (Impact Funds,
emerging platforms)
About 10%
$5 Billion
PHILANTHROPY(GIVING MARKETS)
Social Return
Social Performance Measurement
• Grants
• Retail (offline channels, online giving, Donor Advised Funds)
• Institutional (Foundations)
About 30%
$300 Billion
SOCIAL CAPITAL MARKETS / MARKETS FOR GOOD
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© Norm Tasevski & Karim Harji
Social Finance Continuum
Jed Emerson (2003) “The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation ”
Organization Type
Primary Goal
Capital
Charge for Products
and Services
Traditional Non-Profit
Social Enterprise (Non-Profit & For-
Profit)
Socially Responsible Corporate
Traditional Corporate
Non-financial mission (social
and/or environmental
value)
Social mission with minimum
expectation of financial return
Profit driven with social and/or
environmental objectives
Profit driven (economic value)
Donations and Grants
Below-market capital, or mix of
donations and market-capital rate
Market-rate capital (including SRI investments)
Market-rate capital
Beneficiaries pay nothing
Subsidized rates or mix of full payers
and those who pay nothing
Market-rate prices Market-rate prices
Purely Philanthropic
Purely Commercial
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© Norm Tasevski & Karim Harji
The Social Capital Market
Socially Responsible Investment
Commercial Investors
Venture Philanthropists
Foundations
Taxpayers
Supply
Non-Profits
Social Enterprises
Social Purpose Businesses
Co-Operatives
Entrepreneurs
Social Economy Organizations
Demand
Credit Unions
Social Stock Exchanges
Community Loan Funds
Rating Agencies
Associations
Intermediaries
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© Norm Tasevski & Karim Harji
Social Finance Across Canada
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© Norm Tasevski & Karim Harji
Serge LeVert Chiasson
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© Norm Tasevski & Karim Harji
Cash
Source: F.B. Heron Foundation and Jessica Shortall (2009): “Introduction to Understanding and Accessing Social Investment”
Supply of Finance
Grant Support
-100%
-90% to -10% 0% 1% to 7% 8% +
Private Equity
Subordinated Loans
Senior Loans
Cash
Lower risk Higher riskHigher risk Lower risk Guarantee
s
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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© Norm Tasevski & Karim Harji
MORE DEBT-LIKE
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 REPLICATIONEXIT
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
© Norm Tasevski & Karim Harji
DEBT EQUITY
$0 $500,000 $1 million $10 million $100 million
OTTAWA COMMUNITY LOAN FUND(Up to $15k)
INVESTECO(Up to $2 mil)
TSX CLEANTECH CLUSTER
($10 - $100+ mil Deals)
RENEWAL FUND(Up to $2 million)
ACCESS COMMUNITYCAPITAL(Up to $5k)
CAPE FUND($1 - 7.5 million)
VANCITY CAPITAL CORPORATION($50k to $10 mil)
CAIC: ENTERPRISE(Up to $50k)
CAIC: MORT.(Up to $500k)
SCP(Up to $300k)
Source: Social Venture Exchange (SVX)
Supply: Major Players
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© Norm Tasevski & Karim Harji
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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© Norm Tasevski & Karim Harji
Adam Spence
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© Norm Tasevski & Karim Harji
Why Intermediation Matters• Scale = reduce transaction and search costs• Investment readiness of ventures• Common language and industry standards• Risk assessment tools• Assessing social value creation
Who will build (and pay) for these intermediaries?
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© Norm Tasevski & Karim Harji
Alterna Community Alliance Housing Fund
• Created to address Ottawa’s affordable housing shortage• Provided low-cost financing for second-mortgage financing• Structured as investment grad instrument offering a five-year GIC
ROR• Took 7 years before PSAC was able to find a “risk-free vehicle” to do
this!
Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”
Public Service Alliance of Canada
• Invested $2m to create the fund
• Committed to responsible investing
• Market rate of return in a “vehicle” that fulfilled fiduciary responsibility
Alterna Savings Credit Union
• Structured an investment vehicle to provide market rate of return as well as direct social impact
• Provides operational / admin. support
Ottawa Community Loan Fund
• Non-profit responsible for screening projects that are• Affordable to
those most in need
• Affordable in the long-term
• Constructed by unionized workers
Carleton Centre for Community Innovation
• Intermediary that helped to align the interests of the groups
• Suggested alternative models drawing on research and experience from the US and UK
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Break
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© Norm Tasevski & Karim Harji
Exercise: In The Investor’s Chair
• Which business is suited to which type of investment?
• Which business would you invest in?• What can you improve on to pitch to investors?
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© Norm Tasevski & Karim Harji
What did we learn?
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© Norm Tasevski & Karim Harji
Next Week
• Jon Packer, Idea Workshop
• Deliverable: Have Questions Ready!!
• Readings