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Third in a series, this webinar focused on Funding Your Social Enterprise: Approaches & Resources for NonprofitsIf you were wondering how and where to get additional funding for your venture, the panel of fundraising experts and practitioners discussed:1. Types of funding available to nonprofit social enterprises2. What foundations support social enterprise and what they look for3. Innovative approaches to fundraising
Citation preview
Funding Your Social Enterprise: Approaches & Resources for
Nonprofits
A Seriously Good WebinarJuly 8, 2010
Zerodivide.org - @ZeroDivideOrg - facebook.com/ZeroDivideorg
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Straw Poll – Who’s on the call?
Are you a…
• Social enterprise/social entrepreneur
• NPO thinking about a new enterprise
• Social enterprise consultant
• Funder/Investor
• Other
3
Straw Poll #2 – What do you most want to hear about?
• Community bank loans (CDFI)
• Program Related Investments (PRI)
• Mission Related Investments (MRI)
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FUNDING SPECTRUM OF SOCIAL ENTERPRISES
Source: Virtue Ventures LLC.
Traditional nonprofit
Social enterprises For-profit
Capital Grants and donations
Grants and below-market capital, no/low-interest
loans
Market-rate capital
Expected social return
High High None
Expected financial return
None Below market or none
Market rate
Sources of capital
Foundations, government grant
programs, bilateral and multilateral
lenders, individuals
Foundations, local government, CDFIs, PRIs, bilateral and
multilateral lenders, nonprofit social investors,
individuals
Traditional venture
capitalists, investment banks, other investment
assets, individual investors, stock
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Social equity investors Private equity investors
Traditional philanthropy
Venturephilanthropy
Community debt
financing
Community development
equity / venture capital
Angel investors /
social venturecapital
Socially responsible investment
funds
Traditional institutional
capital(e.g., banks,
mutual funds)
Source: Jed Emerson, based on the work of Shari Berenbach and Timothy Freundlich, 2000.
Spectrum of Investors
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ALTERNATIVE FINANCING
• Community Development Financial Institutions (CDFI)
– A CDFI is a specialized financial institution that works in market niches that are typically outside the areas served by traditional financial institutions.
– CDFIs are regulated under the U.S. Treasury through the CDFI Fund.
– Services include providing financial services, loans, and investments; offering training and technical assistance services; and promoting development efforts that enable individuals and communities to effectively use credit and capital.
For more information on CDFIs or to find a CDFI in your region, please visit the Coalition of Community Development Financial Institutions at
CDFI.Org
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TYPES OF LOANS Facility Loans Acquisition Construction, renovation and leasehold improvement Related soft costs, such as professional fees and permits Relocation costs
Working Capital Loans Bridging capital campaign receipts, grants, government contracts, and other receivables Lines of credit to support temporary cash flow needs Program expansion
Equipment Loans Office equipment and furniture Computer hardware and software HVAC and security systems Other program-and facility-related equipment
Growth Loans Expand programs Grow an earned income or social venture
•New Market Tax Credits
Loan Sizes NFF’S loans typically range from
$100,000 to $2 million Other CDFI’s offer both smaller
loans as well as larger loans up to $5 million
Rates Vary with type of loan and can
be fixed or variable.
Terms Can range from short term for
bridge financing up to 5-7 years for facility projects.
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PROGRAM RELATED INVESTMENTS (PRIs)
• Program-related investments (PRIs) are investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organizations or in commercial ventures for charitable purposes.
• Make Foundation funds available for charitable purposes (like grants)
• BUT
• Generally come back to the Foundation, with some interest – generally below market rates (unlike grants)
• AND
• Can never be made for the primary purpose of financial gain (unlike regular Foundation investments)
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FOR EXAMPLE?
•Construction loans…for charter schools, health clinics, affordable housing, child care centers, and other projects serving charitable purposes
•Business loans and investments…to start and expand companies that employ lower-skilled workers and strengthen underserved or distressed communities
•Short-term financing and working capital loans…to buy land for conservation before permanent funds are raised; to cover operating costs for a social service agency awaiting government payments
•Credit enhancement…to make mortgages to low-wealth homebuyers; to facilitate investment in community and sustainable development projects and organizations
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CALIFORNIA COMMUNITY FOUNDATION
•Purpose
Bridge loan for pre-construction of a major cultural facility
•Terms
Period – 6 months
Amount - $300,000; cumulatively - $1.025 million
Interest Rate – 3%
Results – Helped Children’s Museum of LA to secure $22.6 million of $50 million capital campaign
PRI to Children’s Museum of Los Angeles
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WHERE DO PRIs FIT IN?
Regular Investments
Social Investments
Program-related Investments
Grants
Primary purpose Financial gain Financial and social gain
Charitable benefit
Charitable benefit
Investment profile
Maximum risk-adjusted financial return
Usually at or near market return
Modest financial return; almost always below market
Zero financial return
Constraints “Jeopardizing investments” are subject to penalties
“Charitable purposes” must satisfy IRS requirements
For more information on which foundations make PRI’s, please visit www.primakers.org
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MISSION-RELATED INVESTMENT (MRI)
•The investment of a foundation's endowment assets in opportunities that align with its program goals. Some foundations have common under criticism for endowment investments in companies who are seen to cause the very problems their programs seek to remedy.
•Financial investment made with the intention of:
(1) Furthering a foundation’s strategic goals
(2) Obtaining a financial return (at or near market rate)
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MISSION-RELATED INVESTMENTS
• Loans• Senior• Subordinated• Loan funds• Line of credit
•Fixed income
• Bonds• Bond funds• Asset-backed securities
•Public equity
• Screened funds• Direct public equity
•Alternative assets• Direct private equity• Private equity funds• VC funds• Fund of funds• Buyout funds• Hedge funds• Real estate
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WHERE DO MRIs FIT IN?
Regular Investments
Social Investments
Program-related Investments
Grants
Primary purpose Financial gain Financial and social gain
Charitable benefit
Charitable benefit
Investment profile
Maximum risk-adjusted financial return
Usually at or near market return
Modest financial return; almost always below market
Zero financial return
Constraints “Jeopardizing investments” are subject to penalties
“Charitable purposes” must satisfy IRS requirements
15
Straw Poll #3 – What do you most want to hear about?
• Foundation vs. non foundation funding
• Specific Fdn. funders
• What funders look for
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Straw Poll #4 – What do you most want to hear about?
• Nonprofit IPO
• Capital campaign
• Other
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Founded: 1974
Mission: Opening doors to safety, dignity, hope and independence.
Vision: Everybody deserves a place to call home
Demographics: 14 housing and shelter programs in Marin County provide 441 beds to homeless children, women, and men, every single night.
Social Enterprises: Catering Business, Public Cooking School, Chocolate Truffles and other deli items, Event Space, Commercial Kitchen Rental
Annual Budget: $4.5 million
The cost of providing food, shelter, and support services is $28 for each person served, each night.
21
Homeward Bound of Marin’s “Fresh Starts Catering” social enterprise offers workexperience and employment to students in its culinary job training programs
while catering a wide variety of events.
22
The Key Room, a conference and dining space operated by Homeward Bound, allows businesses and community members to hold business workshops, team-building events,
weddings, and elegant dinners in this beautiful state-of-the-art location.
Was funded by a successful capital campaign – an alternative way to raise funds forsocial enterprise. Attracted many new foundation funders from out-of-county.
23
An on-site public cooking school offers classes and lectures by culinary luminarieslike Chefs Michael Mina, Heidi Krahling, Joanne Weir and Rajat Parr.
24
Halo Truffles provide another unique avenue to support our work.
Look for them in high-end markets and take a bite out of homelessness!
25
In May 2007, Homeward Bound launched the first ever nonprofit IPO.
Warren Buffett was our inaugural shareholder.
26
Over 1,000 shareholders, have purchased 31,940 shares, generating $1,022,080 …so far.
27
Additional Innovative Approaches
• Enter business plan or other competition
• Partner with other SEs in similar space
• Pre-service purchase or discount
• Crowdsource
• Attach business plan to grant proposal
• Explore Hybrid models (L3C) or Co-op
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How to Fund Youth Media Marketers?
• 3 year old nonprofit social media consultancy
• Foundation funding soon to end
• 60% sustainable
• Business demand increasing
• Wanting to expand business and create satellite ventures
• Have franchise opportunities
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Contact info
• David Greco, Nonprofit Finance Fund (nonprofitfinancefund.org)Phone: 415-255-4849Email: [email protected]
• Laura Efurd, ZeroDivide (zerodivide.org) Phone: Phone: 415-773-0388Email: [email protected]
• Paul Fordham, Homeward Bound (hbofm.org)Phone: 415-382-3363 ext.211 Email: [email protected]
• Paul Lamb, Man on a Mission Consulting (manonamission.biz)Phone: 510-815-6091Email: [email protected]