CROWD MATCH FUND KICK-OFF WORKSHOP Big Society Capital

November 2015

INTRODUCTION AND AGENDA

2

Time Session Speakers

08:45 – 09:00 Arrival and coffee

09:00 – 09:20 Welcome and Agenda

Social Sector Access to Finance

Ben Warren, BSC

Melanie Mills, BSC

09:20 – 10:00 Social Investment and Match Funding Ben Warren, BSC

Peter Baeck, NESTA

10:00 – 10:30 Social Investment Tax Relief Simon Rowell, BSC

10:30 – 10:45 Coffee

10:45 – 11:45 Details of the ‘Request for Proposals’ + Q&A Ben Warren, Simon Rowell, Marcus Hulme,

Malavika Raghavan (all BSC)

11:45 – 12:30 The View from the Frontline Matt Fountain, Freedom Bakery

Simon Rowell, BSC

12:30 Close

Agenda for Crowd Match Fund Kick-off Workshop for Alternative Finance Platforms

SOCIAL SECTOR ACCESS TO FINANCE WHAT DO WE KNOW Melanie Mills, Big Society Capital

November 2015

SOCIAL SECTOR ACCESS TO FINANCE

4

FACTS, STATS & LEVELLING THE PLAYING FIELD

WHY DO WE NEED SOCIAL INVESTMENT TAX RELIEF ?

Lack of appropriate finance: 63% of social enterprises seek long-term loans and 48% want funding with a mix of debt and equity

Barrier to growth: 48% of charities and social enterprises identify a lack of available and affordable finance as the single largest barrier to their sustainability, versus 33% of SMEs

0

200

400

600

800

2011 2015

Riskcapital

Securedlending

Charity Charities/ Social

Enterprises SMEs

EIS and VCT Gift Aid

EIS and VCT provide incentives for equity investment into SMEs, but few social enterprises and no charities can benefit because of legal form Gift Aid provides relief for donations only

GAP

73% of prospective high-net-worth investors have indicated tax relief is key incentive to invest in social

investment products4

Ne

w £

GET SITR CAMPAIGN

•MASS EDUCATION

–Email, events, resources, media

•ADVISORS & PROVIDERS

–Awareness, knowledge & expertise

•MARKET LEADERS

–Support for first 30 deals

–PR, legal, research, strategy, tax

WHO’s GOT IT?

FairShare South West

Ambition East Midlands

FC United of Manchester

Aspire Gloucestershire

40-75k 275k

PIPELINE PIPELINE

CROWD MATCH FUND KICK-OFF WORKSHOP FOR ALTERNATIVE FINANCE PLATFORMS Peter Baeck, Principal Researcher, Nesta @peterbaeck

CENTRE FOR INNOVATION IN FINANCE

What is matched crowdfunding

Ways of funding projects and organisations through mixing and matching institutional money with funding from ‘the crowd’

In first Top up Real time

Lots of ‘informal’ matching

Lots of experiments and activity in the UK and internationally

Lots of UK and international experiments and programmes

Crowdfunder and Creative England – queen of code

• Projects need to upload a Crowdfunder project (min. £2k target) to raise funds from their communities.

• Once the projects have funded, the five successful campaigns with the most supporters/backers will each receive £3,000 on top of their crowdfunded projects.

British Business Bank and Funding Circle

BBB provides the last 10% of loans to SME’s via

Funding Circle.

Voordekunst

Dutch platform Voordekunst uses a combination of public and private funds to support crowdfunding campaigns by giving projects a 25 - 30% investment provided that the crowd donates the remaining amount

Danish Government – matched grants

Danish central government, have set up a match fund in as part of their support for start-ups. Companies who have raised approximately £50.000 through a reward-based platform of their own choosing, can seek a match funding grant of between £50,000 and £146,00

• Identifying new investment opportunities

• Better market intelligence / Using the crowd to identify good projects

• Leveraging – directing more investment towards particular areas

• Better public involvement in spending/investment decisions

• More skin in the game from ‘the crowd’ with opportunity for non-financial benefits

Why is this so interesting?

Lots of experiments and activity in the UK and internationally Matchfund design considerations

Lots of experiments and activity in the UK and internationally

Design questions

1. Area of focus

2. How and when to provide a match

3. Managing expectations

4. Measuring impact

1.Focus

• Geographic or themed focus?

• Large or small scale raise?

• Projects or organisations?

• Large or small number of raises?

• Type of fundraiser

2.How and when?

• Through one platform or many?

• Up-front, top-up or real time?

• % size of match?

• Under what financial conditions?

• Under what funding/selection criteria?

• Who manages the fund – platform or funder?

• Should this relate to existing funding streams?

• What will the funding window be?

3.Managing expectations

• Setting realistic financial targets

• Maximising non financial opportunities

• Most beneficial length of campaign

• Managing failure to raise the funds

• Support function for interested projects and organisations?

4.Impact

• What does success look like?

• How is that going to be measured?

• Desired impact beyond the matches (market making, learning etc.)

Questions? peter.baeck@nesta.org.uk

@PeterBaeck

Social investment tax relief

What it is and how its working

Why do we need Social Investment Tax Relief ?

2

Lack of appropriate finance: 63% of social enterprises seek long-term loans and 48% want funding with a mix of debt and equity

Need : Facts and Stats

Growing demand, from the social sector for higher risk capital will increase significantly to about £550m by 2015

Barrier to growth: 48% of charities and social enterprises identify a lack of available and affordable finance as the single largest barrier to their sustainability, versus 33% of SMEs

0

200

400

600

800

2011 2015

Riskcapital

Securedlending

£m

p.a

SITR levelling the playing field for tax incentives

Charity Charities/

Social Enterprises

SMEs

EIS and VCT GiftAid

EIS and VCT provide incentives for equity investment into SMEs, but few social enterprises and no charities can benefit because of legal form Gift Aid provides relief for donations only

GAP

73% of prospective high-net-worth investors have indicated tax relief is

key incentive to invest in social investment products4

New

£

What is in in for me?

• Unlock large amount of new capital

• Help identify new investors/partners with connection to social issue

• Better investment terms? Tax relief may enable lower risk-adjusted interest rates (no minimum rate of return)

• More appropriate products available – simple debt products, per Charities

• Other more sophisticated products (such as combinations of mortgages and unsecured debt) may also be helped

3

Charities and social enterprises Investors

• Provides an opportunity to increase support to charities and social enterprises they already know or support

• Product has ‘look and feel’ of Enterprise Investment Scheme

• Access to new products (debt products available in SITR but not under EIS)

• Up-front income tax relief (30%)

• New sectors (such as health and social care & finance)

• Diversified returns

(1) Worthstone and Wragge & Co. , The Role of Tax Incentives in Encouraging Social Investment (2013)

Who can benefit from SITR?

4

No. Question The investee organisation is eligible if it:

1 Legal Status Is a registered charity, IPS Community Benefit Society or Community

Interest Company? AND

2 Size Has less than 500 employees AND

Less than £15m assets AND

3 Activities Not undertake any excluded activities, being: electricity generation,

property development, personal lending

No. Question The investment is eligible if:

4 Type It is either of:

- Shares OR

- Debt that is:

o Not secured by any assets AND

o Does not repay the principal in first 3 years AND

o Is not preferred to any other investment instruments on wind-

up AND

5 Size The tax relieved amount is no more than £290,000 (approximate

calculation) AND

6 Other relief It has not received tax relief already (through EIS or VCT) on the same

investment

No. Question The investor is eligible if:

7 Investor It is an individual paying tax in the UK AND

8 Structure The investor invests either:

- Directly OR

- Through a nominee fund

8 Eligibility Test Steps:

Investee

(your organisation)

Investor

Investment

Social Investment Tax Relief (SITR): Just over a year after it

became law, public deals and funds starting to emerge

£270,000 equity (form of loan-notes) from 19 investors to help develop stadium and community facilities

£70,000 debt from small group of angels (one angel finally committing)

£100,000 from five individuals to deliver a social impact bond for local youth through three local charities P3, YMCA and The Y

£50,000 investment from five individuals for a social impact bond to work with 150 young people from Gloucestershire

Five deals completed in the first year of operation Two funds already launched focused on local areas

Launched SITR fund in Bristol to invest up to £5m in local social enterprises. Partner with UBS to help with distributing fund through wealth manager network. Plans for 6 to 8 more funds, including next fund in Manchester

Launched SIS community capital as a SITR fund to raise £500,000 from investors to invest in Scottish social enterprises

Launched by Social Finance and Kin Capital to raise £3m to improve the lives of children, young people and vulnerable people across the UK.

£60,000 investment from six individuals to help run a social enterprise bakery in prison in Glasgow to help offenders get a decent job after release

At least 3 deals currently (publicly) seeking capital

£280k community shares

£75k community shares Unknown community shares

GET SITR CAMPAIGN

• MARKET LEADERS

– Support for first 30 deals

– PR, legal, research, strategy, tax

• ADVISORS & PROVIDERS

– Awareness, knowledge & expertise

• MASS EDUCATION

– Email, Events, Resources, Media

6

Significant interest forecast for SITR over next period by

smaller organisations

Stage No. organisations

Total capital

Total investors

Comments Source

Deals done – public

5 £550,000 36 Loan note, loans, 2 x SIBs,

Public

Deals done – not public*

3 £300,000 21 Community shop, day care, personal delivery

BSC discussions

Deals in process**

14 £933,000 98 Community assets

BSC discussions

Considering***

75 £2,500,000 525 Range GET SITR list

Total £4,283,000 680 ESTIMATE

Applying for advanced assurance

>40 HMRC

*Based on average SITR investment size of £100k and 7 investors **2/3 expected to complete ***1/3 expected to complete

£0

£500,000

£1,000,000

£1,500,000

£2,000,000

£2,500,000

£3,000,000

£3,500,000

£4,000,000

£4,500,000

Deals done – public Deals done – not public*

Deals in process** Considering***

SITR forecast capital raise

Total capital Cumulative

Forecasts suggests £5m could be raised over next 12 months… … across 75 different organisations

Tax year 15-16 16-17 17-18 18-19 19-20

Income tax foregone (£m) 0 10 15 25 25

SITR raised (£m) £0 £33 £50 £83 £83

HMT predicted 0 tax raised in first year, so surpassing expectations

Enterprise Investment Scheme raised £4m from 77 companies in first full year (93-94) Source: EIS Statistics, HMT

Source: Budget, HMT, 2015

Roughly consistent with start of life at EISs

8

Many mainstream fund managers are interested in SITR,

with a few early adopters waiting until size limit increase

50%

14%

36%

Fund manager SITR interest

Fund manager SITRinterest

Disinterested

Possibleparticipants

Early adopters

Significant % of early adopters within fund managers

At least 7 funds would consider setting up a social VCT

Most fund managers need to make investments >£1m per deal

Strong client demand and good business lead early adopter interest

SITR is going already however slower than expected size

increase means focus shifts towards getting small deals done

Mar 2013

Mar 2014

Dec 2014

Budget 13 Announced

Budget 14 – legn launched – 6 April scheme operational

The social investment tax relief timeline

From now, there are three big outstanding issues for SITR

NOW Likely approval for size increase*

July 2014

SITR becomes law (royal assent)

Nov 15

Size limit increase

• Commitment by HMT to seek EC approval to raise size limit in Autumn statement 14 (Dec 14) • HMT delayed seeking approval because prioritised EC approval for EIS and VCT – only started

working on in Oct 15 • EC approval as ‘new market’ rather than risk capital – therefore takes longer as sets precedent

Social VCT

Govt commitment to social VCT and increase size limit to £5m

Apr 16 Nov 16 Mar 17

Social VCT law*

* Based on verbal public statements from HMT

Community energy eligible for SITR

• Commitment by HMT to legislate for social VCT in Autumn statement 14 (Dec 14) • HMT delayed work on social VCT because of resource constraints and lack of evidence in

demand for social VCTs by current VCT managers (BSC subsequently provided further evidence) • EC approval as ‘new market’ rather than risk capital – therefore takes longer as sets precedent

• HMT in Dec 14 transfer community energy from eligible for EIS to SITR once limited is raised • HMT in Mar 15 extended time for transfer for 6 months following SITR change • In Oct 15, community energy removed from SITR from Nov 15 and still not eligible for EIS • Unclear if opportunity to reverse this decision, but advocacy ongoing

Oct 15

SOCIAL IMPACT OVERVIEW Marcus Hulme, Big Society Capital

November 2015

QUESTIONS

2

1. What is social impact

2. What is our Social Impact Approach?

3. What social impact information will we need for the Crowd Match

Fund?

WHAT IS SOCIAL IMPACT?

3

Social impact is the change (positive or negative) that happens

as a result of an activity.

Investment Social Sector

Organisation Impact

Our social impact priority is to grow the social investment market to

support vulnerable and disadvantaged people in the UK.

BSC’S IMPACT APPROACH

Impact

Infrastructure

Impact evidence

informs all our

investment

decisions and we

understand impact

risk.

Gathering

evidence from

deals about the

impact being

delivered and

being open and

transparent

Support and

resources of

impact

measurement in

the social

investment market.

Using impact

evidence to

influence key

stakeholders,

share best practice

and grow the

market.

Delivering

Impact

Building

Evidence Sharing learning

As market champion

Connect

knowledge and

networks

Communicate

research and

tools

Build broader

supporting

environment

As investor

Find and

develop new

proposals

Assess and co-

develop ideas

Portfolio

performance

management

ASSESSING IMPACT

MONITORING IMPACT

Content on our website:

1. Our Social Impact

approach

2. Investor best practice

3. Social sector guidance

4. Social Impact FAQs

5. Social Impact Resources

6. Social Impact Reports

7. Social Impact Providers

8. Outcomes matrix

Each deal reports key impact data on frontline organisations including mission,

beneficiary group, outcomes, indicators and targets if applicable

CROWD MATCH FUND OUTLINE IMPACT REQUIREMENTS

7

1. SITR eligibility.

2. Public benefit test (inclusive accessible, affordable).

3. Key information gathered as part of registration process on the

platform (e.g. mission, outcome area, geography, beneficiary

group)

4. One metric for one outcome for each organisation tracked over

time and reported back by the platform to us on an annual basis.

CROWD MATCH FUND PROCESS DETAILS OF THE RFP AND Q&A Ben Warren, Big Society Capital

November 2015

9

1. Process and Timeline

2. Request for Proposals format

3. Scoring Criteria

1. PROCESS AND TIMELINE

10

1. Open Request for Proposals (RfP) window – 30th November - 15th January

2. Shortlisted Proposals to IC – 27th January

3. Open Day Surgery to refine final proposals – 26th February

4. Final full proposals taken to IC – 16th March

2. REQUEST FOR PROPOSAL FORMAT

11

Experience

Background of running an

alternative finance

platform

Delivery

Proposed approach for

using the match fund,

including:

• percentage match

• proposed product type

Forecast/ Pipeline

Fund financial forecast,

including detail on:

• No. of borrowers and

lenders

• Value of investments

• Default and repayment

rates

Each application will be judged against the following criteria;

3. SCORING CRITERIA

12

Each application will be judged against the following criteria;

Social Impact

A commitment to

measuring and monitoring

social outcomes

Forecasts

A clearly articulated

proposal for how to

develop a pipeline of

borrowers and lenders

Delivery

A strong management

team and business model

Previous experience and

innovative approaches

Matt Fountain, Director

Who Are we?

Freedom Bakery C.I.C. is a start up

social enterprise established to train

prisoners and ex-offenders on the

job within in an artisan bakery.

Partnership with HMP Low Moss

1st ever social enterprise partnership

with the Scottish Prison Service

4 years with option to extend for 36

months

Includes a café concession which on

current trading history will trade

£500,000 over the next 4 years.

Taken with our diversified revenue

streams we currently project a

turnover of £760,000 for this cost

centre.

Competing with the mainstream..

Efforts like the

Freedom Bakery

should be supported,

replicated and scaled.

Richard Branson

www.bigsocietycapital.com

Big Society Capital Limited is registered in England and Wales at Companies House number 07599565. Our

registered office is 5th Floor, Chronicle House, 72-78 Fleet Street, London EC4Y 1HY. Big Society Capital is

authorised and regulated by Financial Conduct Authority number 568940.