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I'm excited about the prospects of using private financial capital to fund impactful initiatives in areas that would in most cases be to risky. This can be done by seeing the high-risk areas a place for R & D, CSR, or a way to mitigate reputational risk. The problem is its complex. There are a couple examples here about trying to make this vision a bit simpler to understand without lying through simplistic propositions.
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Impact Investing?Venture Philanthropy?Social Finance?Patrick [email protected]
Slides from:Acumen FundArthur WoodHope Consulting
The Spectrum of Social Capital Investment - created in 1888 / 1944 – “essentially pre modern capitalism” – the Gap
no financial return below market return market return
High risk
Low risk
Grants$400bn
50%
Programme-relatedinvestments
Venture philanthropy
Mainstream“For Profit” Investments
Investment plus
Social Responsible Investment circa $4trn
Corporate Engagement incl
CSR
”
NO INDIVIDUAL OR SYSTEM MECHANISMS – THE GAP
Value Chain Financing – Sanitation
Grants Recoverable Grants
Investment Plus MainstreamInvestments
no financial return below market return market return
Scale (GAVI) & Synthetic Profit (Corporate incentive)
Increase the credit quality of social capital markets ie. Leveraging - Microfinance / DB Eye fund model
Incentivising Innovation / Collaboration at the bottom of the pyramid – Social Entrepreneurship
Enables a Range of Financing options; incentivising corporates, banks, civil society;integrating “ for profit” and “not for profit” players
Based on “Foundations and Social Investment” Margaret Bolton 2005 and Bates Wells & Braithwaite
Legal Process – ie L3C / CIC
Financing Mechanisms incentivising Community and Corporates Carbon / Vouchers / Fertiliser / Power
Programme Related Investment
WHAT DO I DO IF I AM A BANK OR GOVERNMENT ? Paul Martin - Former PM of Canada “The question I would put to you is quite simple” – Nov 2007
“If we are prepared to use these kinds of (tax / legislative) incentives to enable business entrepreneurs to tap capital markets for the betterment of the economy, why would we not provide similar incentives to social entrepreneurs as they seek to tap capital markets for the betterment of society.
• Financial experts ought to be developing new cutting edge instruments to make funding available to social entrepreneurs
• Tax experts ought to be thinking about mechanisms that can support social enterprise in a meaningful way.
• Legislators should encourage an environment that allows foundations to become more imaginative in support of social enterprise”.
55
Patient Capital for long term social impact
Financial return expectation
No return
Traditional venture capitalMaximize financial return
Maximize
Social impact expectation
No explicit concern Maximize
Capital only
Traditional philanthropyMaximizesocial impact
Patient CapitalBlending social and financial returns for long-term social impact
66
Early stage
Scale up
Exit at Scale
Recycle returns
We invest money and time to grow real businesses that alleviate poverty, and then recycle our returns
8-10 years
Invest grant funds in start up equity or debt
Grow businesses focused on social impact and sustainability
Recycle returns into more businesses
1 2 3
77
An investment in water delivery…
• PROBLEM Government policy of free water has failed
• SOLUTION WHI sells affordable clean water– Innovative technology works with unreliable
power– Costs covered by user fees + local govt
subsidies– Started with 1 plant in Andhra Pradesh, India
in ‘05
• INVESTMENT Acumen Fund investment in 2004:– $675k equity + $2M in subsequent loan
guarantees– Hands on management support to launch
business
• IMPACT By end-2009, WHI had:– 286 plants serving ~300k customers– 220 more plants on order by State
government– Raised $22M in follow-on equity and
$24M in commercial debt facilities
88
…is catalyzing an entire industry to serve the poor
0
100
200
300
400
500
600
700
800
900
1,000
2004 2005 2006 2007 2008 2009
Others
BV
Naandi
WHI
Number of private rural water plants in India
WHI and Naandistart JV
• Over 700 plants inspired by the WHI model
• ~900 plants serving ~ 1M people across India
• State governments now passing legislation to enable large scale replication
Private sector replacing the public
The process
FINDAmazing
Entrepreneurs
SCREENBreakthrough Idea,
Sustainability & Impact
INVEST$, Expertise &
Patience
∞IMPACT
LIVES CHANGEDUnleashing a person’s full potential =
infinite growth
SUSTAINABILITYBusinesses that keep on going and going;
Returns are recycled
SCALEShifting mindsets, catalyzing a
sector, public sector partnerships, inspiring others to do the impossible
DONOR
Value Chain Financing – Sanitation
Grants Recoverable Grants
Investment Plus MainstreamInvestments
no financial return below market return market return
Scale (GAVI) & Synthetic Profit (Corporate incentive)
Increase the credit quality of social capital markets ie. Leveraging - Microfinance / DB Eye fund model
Incentivising Innovation / Collaboration at the bottom of the pyramid – Social Entrepreneurship
Enables a Range of Financing options; incentivising corporates, banks, civil society;integrating “ for profit” and “not for profit” players
Based on “Foundations and Social Investment” Margaret Bolton 2005 and Bates Wells & Braithwaite
Legal Process – ie L3C / CIC
Financing Mechanisms incentivising Community and Corporates Carbon / Vouchers / Fertiliser / Power
Programme Related Investment
