Upload
evelyn-garrison
View
214
Download
0
Tags:
Embed Size (px)
Citation preview
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP1
Session 7Session 7
Social Social Entrepreneurship and Entrepreneurship and
Social InnovationSocial Innovation
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP2
Venture PhilanthropyVenture Philanthropy
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP3
OverviewOverview
• Creative philanthropy• Venture philanthropy• Case: Acumen and WaterHealth International
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP4
Creative PhilanthropyCreative Philanthropy
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP5
Key QuestionsKey Questions
• What do you think is the role of philanthropy?
• How effective is it?• What do you understand by foundation strategy?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP6
The ‘Classic’ The ‘Classic’ FoundationFoundation• Endowed by a wealthy benefactor
• Probably several generations earlier
• Governed by great and the good• Grant strategy:
• Project funding• Asset strategy:
• Maintain balance sheet for future generations
• Custodians not original donors• Mission but no strategy?
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP7
Purposes Of Purposes Of FoundationsFoundations
Fund services e.g. revenue grant
fund a support line for the elderly
Seed fund and capacity build around unmet societal needse.g. grant fund the
start-up of a childcare service integrating
children with disabilities
Effect societal / systemic change
e.g. project grant fund
campaigning work on
discrimination against those with mental
health issues
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP8
Grant StrategiesGrant Strategies
• React and negatively screen• Most foundations
• Research• New Philanthropy Capital
• Lead, innovate, collaborate• FB Heron
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP9
Asset StrategiesAsset Strategies
• Optimise income and capital growth • Unrelated to mission
• Invest in mission-aligned organisations• MRI• Risk funds
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP10
A Total Portfolio A Total Portfolio ApproachApproach
Fully commercial
assets
Negatively screenedassets
(SRI funds)
Positively screened
assets
Missionresonant
investments
Grantmaking
Programme related
investments
Purely Financial Return
Purely Social Return
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP11
Cash
Public
Equity
Fixed Income
Cash
Private
Equity
Guarantees
Senior Loans
Subordinated
Loans
Grant
Support
Market-Rate Investments
Below-Market Investments
Equity
Social Investment SpectrumSocial Investment Spectrum
Ragin (2005)Ragin (2005)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP12
FB Heron FoundationFB Heron Foundation• Using assets to support mission and maximize impact• $32.4 million in grants; $520 million in assets
• Expanding the ‘Philanthropic Toolbox’• Grants as part of a spectrum of tools
• Maintaining investment discipline• Conforming with asset allocation policy• Using benchmarks and prudent underwriting practices (including third-party reviewers)
• Partnering with others to increase impact• Co-investing, joint underwriting, syndications
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP13
FB Heron FoundationFB Heron Foundation• Some key learning from PRI-making
• Be serious about being repaid (“moral hazard” issue)
• Invest with those you know• Consider intermediaries versus direct investments
• Use third-party reviews to increase quality of underwriting and build capacity
• The process does not end at the closing
• You do not have to do it alone
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP14
Cash
Cash
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
Below-market deposits in “low-income Below-market deposits in “low-income designated” credit unions to increase designated” credit unions to increase the capacity of these member-owned the capacity of these member-owned institutions to provide financial institutions to provide financial services to membersservices to members
FB Heron FoundationFB Heron Foundation
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP15
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
“Typical” program-related investments made to non-profit CDFIs, CDCs or others for a term of up to 10 years at interest rates of 1% to 6%
Sen
ior
Sen
ior
Loan
sLo
ans
FB Heron FoundationFB Heron Foundation
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP16
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
Subordinated debt (with respect to right of Subordinated debt (with respect to right of repayment) may include secondary capital to a repayment) may include secondary capital to a credit union, trust preferred securities to a credit union, trust preferred securities to a
community development bank, or so-called community development bank, or so-called “equity-equivalent debt” (EQ2) to a CDFI or “equity-equivalent debt” (EQ2) to a CDFI or
CDCCDC
FB Heron FoundationFB Heron Foundation
Subordinated
Subordinated
Loans
Loans
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP17
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
Includes limited partnership interests in Includes limited partnership interests in community development venture funds, clean community development venture funds, clean tech and environmental funds, microfinance tech and environmental funds, microfinance funds, and preferred or common stock funds, and preferred or common stock investments in community development banksinvestments in community development banks
FB Heron FoundationFB Heron Foundation
Equity
Equity
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP18
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
The dual character of PRIs: charitable The dual character of PRIs: charitable distributions and asset management tooldistributions and asset management toolAre PRIs always part of the “grants budget”?Are PRIs always part of the “grants budget”?
FB Heron FoundationFB Heron FoundationGrant
Grant
Support
Support
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP19
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
Guarantees can enhance access to capital by Guarantees can enhance access to capital by lowering the actual or perceived risk of lowering the actual or perceived risk of lending by conventional lenderslending by conventional lenders
FB Heron FoundationFB Heron Foundation
Guarantee
Guarantee
ss
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP20
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
Market-rate deposits in community development Market-rate deposits in community development credit unions and community development bankscredit unions and community development banks
FB Heron FoundationFB Heron Foundation
Cash
Cash
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP21
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
Separate bond account consisting of fixed-Separate bond account consisting of fixed-income securities aligned with the income securities aligned with the Foundation’s programmatic interests. Foundation’s programmatic interests. Includes taxable municipal securities, Includes taxable municipal securities, targeted mortgage-backed securities, and targeted mortgage-backed securities, and asset-backed securitiesasset-backed securities
FB Heron FoundationFB Heron Foundation
Fixed
Fixed
Income
Income
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP22
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
Long history of “socially-screened” stock investments and proxy activityMore than $2 trillion of such assets in the USANegative vs. positive screening
FB Heron FoundationFB Heron Foundation
Public
Public
Equity
Equity
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP23
Market-Rate Market-Rate InvestmentsInvestments
Below-Market Below-Market InvestmentsInvestments
Since 1999, there has been a significant Since 1999, there has been a significant increase in community development venture increase in community development venture funds, as well as funds that target women- funds, as well as funds that target women- and minority-owned businessesand minority-owned businessesReal estate particularly promisingReal estate particularly promising
FB Heron FoundationFB Heron Foundation
Private
Private
Equity
Equity
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP24
http://www.fbheron.org/documents/http://www.fbheron.org/documents/ar.2006.pdfar.2006.pdf
Annual Report 2006Annual Report 2006
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP25
http://www.fbheron.org/documents/http://www.fbheron.org/documents/ar.2006.pdfar.2006.pdf
Annual Report 2006Annual Report 2006
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP26
http://www.fbheron.org/documents/http://www.fbheron.org/documents/ar.2006.pdfar.2006.pdf
Annual Report 2006Annual Report 2006
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP27
Annual Report 2006Annual Report 2006
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP28
Venture PhilanthropyVenture Philanthropy
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP29
VC v FoundationsVC v Foundations
Venture Capital Foundation
Risk Management
High risk/detailed analysisPortfolio diversification
Low risk/little analysis
Performance Metrics
Investment based on agreed projectionsClosely monitored
Investments based on social missionLightly monitored
Investor Relationship
Close partnershipOffers range of support
Distant oversightLittle direct intervention
Amount of Funding
Large per ventureIncremental stages
Small per ventureLump sum grant
Length of Relationship
Typically 5-7 years Typically 1-2 years
Exit Strategy Sell stake/IPO/new finance
No path to new finance
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP30
BBuussiinneessss
CChhaarriittyy
Hands-Hands-offoff
Hands-onHands-on
VCVC
BanksBanksTrusts &Trusts & FoundationsFoundations
VPVP
Social EquitySocial Equity
Venture FundingVenture Funding
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP31
HighHigh Venture Venture PhilanthroPhilanthropypy
Community Community DevelopmenDevelopment Financet Finance
Venture Venture CapitalCapital
‘‘RecyclablRecyclable’ Loanse’ Loans
Programme Programme Related Related InvestmentInvestment
Mezzanine Mezzanine FinanceFinance
LowLow
TraditionaTraditional Grant-l Grant-Making Making TrustsTrusts
Charity Charity BankBank
BankBank
SocialSocial Social and Social and FinancialFinancial
FinancialFinancial
Risk/Risk/InvolvementInvolvement
ReturnReturn
Risk/Return OptionsRisk/Return Options
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP32
• For Social Purpose Organisations: For Social Purpose Organisations: • Long-term core funding Long-term core funding • Stronger organisational capacity Stronger organisational capacity • Business expertiseBusiness expertise
• For Donors: For Donors: • Value for money and max social Value for money and max social impactimpact
• Transparency and accountabilityTransparency and accountability• For Society:For Society:
• Transfer business skills into the Transfer business skills into the voluntary sector for greater voluntary sector for greater efficiency and effectivenessefficiency and effectiveness
Venture PhilanthropyVenture Philanthropy
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP33
Venture PhilanthropyVenture Philanthropy
Venture philanthropy is the Venture philanthropy is the philanthropic application of philanthropic application of
venture capital principles and venture capital principles and practice…In addition to grants, practice…In addition to grants, venture philanthropists provide venture philanthropists provide networking, management advice networking, management advice and an array of other supports and an array of other supports to organizations within a given to organizations within a given
portfolio of charitable portfolio of charitable investmentsinvestments REDFREDF
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP34
Venture PhilanthropyVenture Philanthropy
Venture philanthropy involves a Venture philanthropy involves a high engagement over many years high engagement over many years
with fixed milestones and with fixed milestones and tangible returns and exit tangible returns and exit achieved by developing achieved by developing
alternative, sustainable incomealternative, sustainable income
Tranquada and Pepin (2005)Tranquada and Pepin (2005)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP35
‘‘Three Pillars of VP’Three Pillars of VP’
• Financial capital• Core funding/capacity building
• Intellectual capital• Consulting• May involve board-level influence
• Social capital• Networks and peers John (2006)John (2006)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP36
Long Term FundingLong Term Funding
• c 5% of philanthropic grants for c 5% of philanthropic grants for more than one yearmore than one year
• Most grants ‘buy’ a social objective Most grants ‘buy’ a social objective rather than ‘invest’ in target rather than ‘invest’ in target organisationorganisation
• Often no link between success and Often no link between success and fundingfunding
• High cost of capital of philanthropyHigh cost of capital of philanthropy• VP provides a package of performance VP provides a package of performance related investment-minded funding related investment-minded funding over timeover time John John
(2007)(2007)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP37
Capacity And Capacity And InfrastructureInfrastructure• SEs often operate under-capacitySEs often operate under-capacity• Many have under-developed Many have under-developed systemssystems
• Few resources for HR developmentFew resources for HR development• Lack of key skills in strategy etcLack of key skills in strategy etc
• VP focuses on building stronger VP focuses on building stronger more sustainable organisationsmore sustainable organisations
John John (2007)(2007)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP38
Types of VP Services Types of VP Services OfferedOffered
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP39
Impact of Support Impact of Support ServicesServices
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP40
Focus On OutcomesFocus On Outcomes
• Easier to measure inputs, Easier to measure inputs, outputs and activitiesoutputs and activities
• Short-term perspectiveShort-term perspective• Limits overall theory of changeLimits overall theory of change• VP helps organisations account VP helps organisations account for their social impact and to for their social impact and to capture outcomescapture outcomes
John John (2007)(2007)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP41
Engaged RelationshipEngaged Relationship
• Transaction relationship > Transaction relationship > partnershippartnership• Tailored financeTailored finance
• Annual reporting > real time Annual reporting > real time involvementinvolvement
• Large portfolios/small engagement > Large portfolios/small engagement > small portfolios/high engagementsmall portfolios/high engagement
• Cheque only > ‘beyond the cheque’Cheque only > ‘beyond the cheque’• VP develops a close working VP develops a close working relationship with investees aiming to relationship with investees aiming to add real valueadd real value John John
(2007)(2007)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP42
Investing In PeopleInvesting In People
• Capable leadership critical for Capable leadership critical for strong organisationsstrong organisations
• Leaders often unsupportedLeaders often unsupported• VP helps develop a strong board, VP helps develop a strong board, committing resources to committing resources to mentoring, team development and mentoring, team development and governancegovernance
John John (2007)(2007)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP43
Venture PhilanthropyVenture Philanthropy
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP44
VP ExitVP Exit
• Investor’s role• Determine strategies for new funding to ensure sustainability post exit
• Help build capacity to access new finance
• Set up capacity milestones towards exit point
Alter et al (2001)Alter et al (2001)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP45
VP ExitsVP Exits
• Access new fundersAccess new funders• Build earned income opportunitiesBuild earned income opportunities• Strengthen social enterprise Strengthen social enterprise activityactivity
• Access new debt financing/APOAccess new debt financing/APO• Merge with a NFP or FP ventureMerge with a NFP or FP venture• Transfer programmes to another NFPTransfer programmes to another NFP• Spin off programme into new NFPSpin off programme into new NFP• Sell NFP to FPSell NFP to FP• Close programmeClose programme
Alter et al (2001)Alter et al (2001)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP46
Venture FundingVenture Funding
• Historical examples over last Historical examples over last thirty yearsthirty years• ACT/WIN (Oxford)ACT/WIN (Oxford)
• 1990s US interest1990s US interest• 2000s European interest2000s European interest• 2007 Asia?2007 Asia?
Letts et al (1997)Letts et al (1997)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP47
US Philanthropic US Philanthropic FundsFunds
US Nonprofit Funding 2002
Individual Donors
Foundations
Corporations
Bequests
Meehan et al (2004)Meehan et al (2004)
$184b$184b
76%76%
$27b$27b
11%11%
$12b$12b
5%5%
$18b$18b
7%7%
TOTAL: $241bTOTAL: $241b
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP48
VP USA (2004)VP USA (2004)
• 40 VP funds• $100m total grants
• c.0.4% of total philanthropic giving
• 75% of funds founded since 1999• $400m-$1b total assets• Average grants per annum: $2.5m• Average staff: 3-4
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP49
VP In EuropeVP In Europe
• Roots in VC/Private Equity• Impetus Trust (UK); Fondazione Oltre (Italy); Breakthrough (UK); One Foundation (Ireland); LGT (Lichtenstein); Rianta Capital (UK)
• EVPA• Formed 2004 out of EVCA• 90 members, 18 countries• Peer networking• Research• Seed fund
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP50
VP In EuropeVP In Europe
There is a need and desire for There is a need and desire for greater collaboration between greater collaboration between private equity and the third private equity and the third sector. In order to facilitate sector. In order to facilitate this collaboration, an annual this collaboration, an annual BVCA-sponsored forum should be BVCA-sponsored forum should be
created to enable the two created to enable the two communities to meet and communities to meet and
integrateintegrate BVCA BVCA (2008)(2008)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP51
• Grew from Social Investment Task Grew from Social Investment Task Force (2000)Force (2000)• Community Development Venture Fund 1 Community Development Venture Fund 1 (2002)(2002)• £40m fund: Govt matching private sector £40m fund: Govt matching private sector investmentinvestment
• Ten year period Ten year period
• CDV Fund 2 (2007) CDV Fund 2 (2007) • £75m entirely from private sector£75m entirely from private sector
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP52
• Invests in:Invests in:• High growth potential businesses at High growth potential businesses at the early and expansion stages the early and expansion stages
• In the most under-invested parts of In the most under-invested parts of EnglandEngland
• For profitFor profit• Mission drivenMission driven• NOT exclusively SEsNOT exclusively SEs
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP53
• Investment in single business Investment in single business £100k-£2m£100k-£2m• Quasi-EquityQuasi-Equity
• Hands-on adviceHands-on advice• CDV Fund 1CDV Fund 1
• Taken equity in 24 businessesTaken equity in 24 businesses• 3 successful exits3 successful exits• Create employmentCreate employment• Regenerate communitiesRegenerate communities
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP54
• Strategic ObjectivesStrategic Objectives• To demonstrate that financial To demonstrate that financial returns can be made by backing returns can be made by backing entrepreneurs in these entrepreneurs in these communitiescommunities
• To attract increased private To attract increased private sector finance into under-sector finance into under-invested communitiesinvested communities
• Catalytic processCatalytic process
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP55
• Formed UK 2000Formed UK 2000• £100m Millennium Commission £100m Millennium Commission grantgrant
• Awards to social Awards to social entrepreneursentrepreneurs
• UK wide Fellowship of people UK wide Fellowship of people who have received awardswho have received awards
• ResearchResearch
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP56
• Levels of Award• Level 1: Awards of between £500 and £5,000 (expected average of £2,000)
• Level 2: Awards of between £10,000 and £20,000 (expected average of £15,000)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP57
• Level 1 Awards: Risk Capital• Designed to help make new ideas become real projects
• 1,000 Level 1 Awards each year across the UK
• Aimed at individuals or informal groups of people who want to set up new projects in their spare time
www.AdamandEveit.netwww.AdamandEveit.net
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP58
• Level 2 Awards: Mezzanine Capital • To support projects that are already developed• Pay for the living expenses of award winners to help them devote more time to their projects
• Given out once in the spring and once in the winter
www.community-food-enterprise.org.ukwww.community-food-enterprise.org.uk
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP59
• UnLtd Ventures: Consultancy Support• Cats Club
• Broker resource relationships• Develop new funding proposals• Build management capacity• Create a template for Cats Club ‘in a box’ franchise strategy
www.schoolfriend.co.ukwww.schoolfriend.co.uk
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP60
• Funds from:Funds from:• IndividualsIndividuals• CorporationsCorporations• FoundationsFoundations
• US$26.5m invested in four US$26.5m invested in four portfolios (2007):portfolios (2007):• Water ($4.7m)Water ($4.7m)• Health ($16.6m)Health ($16.6m)• Housing ($5m)Housing ($5m)• Energy ($200k)Energy ($200k)
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP61
• Start upsStart ups• Social innovationsSocial innovations• New technologiesNew technologies
• Not-for-profit > for-profitNot-for-profit > for-profit• Grants > loans, (quasi) equity, Grants > loans, (quasi) equity, guaranteesguarantees
• Pooling investments Pooling investments • Scale economiesScale economies• Reduced costsReduced costs
• Risk management through Risk management through ‘portfolio’ approach‘portfolio’ approach
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP62
Acumen: WaterHealth Acumen: WaterHealth Int.Int.• Is Acumen a VP fund?Is Acumen a VP fund?• How has it changed?How has it changed?• How should it structure the deal How should it structure the deal with WHI?with WHI?