Venturesome Social Purpose Finance 2009

Venturesome – social purpose finance

Paul ChengInvestment Manager, Venturesome

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Agenda

Introduction to Venturesome

Funding needs and financial mechanisms

The challenges of unlocking capital

Case studies

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Venturesome: filling a funding gap

Charities are undercapitalised Weak balance sheets There are no social investors (just donors)

Our goal: lack of access to capital is no longer a major barrier to charities achieving their social impact

Our mission is to change the way society thinks about how charities and social purpose businesses should be financed

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Mad money – the irrational world of charity finance

Surpluses are bad Cash is restricted Price does not have to cover costs Marginal costs of growth can be ignored Overhead is a luxury and a distraction

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Our track record

Since 2002, we have offered over £12m to over 200 charities

Default rate is very low: <5% We are currently managing a fund of £12m Our investors are charitable foundations, banks

and high net worth individuals

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The spectrum of venture capital involvementC

OM

MER

CIA

L D

RIV

ERS SO

CIA

L / PH

ILAN

THR

OPIC

D

RIVER

S

Commercial Investment in

Social / Environmenta

l Sectors

Community Development

Venture Capital

Social Enterprise

Investment / Social

Venture Capital

Venture Philanthropy /

Charitable Initiatives

VC / SocialSpecialist VC Social / VC Philanthropy Mainstream VC

Environmental

sustainability, CSR and SRI consideration

s for Mainstream VC Investors

(c) Venturesome 2009

The spectrum of venture capital involvementC

OM

MER

CIA

L D

RIV

ERS SO

CIA

L / PH

ILAN

THR

OPIC

D

RIVER

S

Commercial Investment in

Social / Environmenta

l Sectors

Community Development

Venture Capital

Social Enterprise

Investment / Social

Venture Capital

Venture Philanthropy /

Charitable Initiatives

VC / SocialSpecialist VC Social / VC Philanthropy Mainstream VC

Environmental

sustainability, CSR and SRI consideration

s for Mainstream VC Investors

Venturesome

(c) Venturesome 2009

Helping individual charities – what we offer

1. Working capital to cover cash flow fluctuations

2. Development capital – ‘hard’ and ‘soft’

3. Pre-funding of fundraising – bridging loan

4. Underwriting – standby facilities

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Main financial mechanisms used by Venturesome

Underwriting / standby facilities undertaking to provide financing for a particular project if

budgeted income does not materialise

Unsecured loans not taking security on the charity’s assets

Equity and quasi-equity the return the funder receives is linked to the financial success

of the venture

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Matching financial mechanisms to funding needs

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

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Matching financial mechanisms to funding needs

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

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Matching financial mechanisms to funding needs

LOW RISK HIGH RISK

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

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Matching financial mechanisms to funding needs

LOW RISK

Hard DevelopmentCapital

HIGH RISK

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

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Matching financial mechanisms to funding needs

LOW RISK

Hard DevelopmentCapital

Working Capital (closed)

HIGH RISK

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

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Matching financial mechanisms to funding needs

LOW RISK

Hard DevelopmentCapital

Working Capital (closed)

Pre-funding Capital Fundraising

HIGH RISK

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

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Matching financial mechanisms to funding needs

LOW RISK

Hard DevelopmentCapital

Working Capital (closed)

Pre-funding Capital Fundraising

Working Capital (open)

HIGH RISK

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

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Matching financial mechanisms to funding needs

LOW RISK

Hard DevelopmentCapital

Working Capital (closed)

Pre-funding Capital Fundraising

Working Capital (open)

Soft Development Capital

HIGH RISK

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

(c) Venturesome 2009

Matching financial mechanisms to funding needs

LOW RISK

Hard DevelopmentCapital

Working Capital (closed)

Pre-funding Capital Fundraising

Working Capital (open)

Soft Development Capital

HIGH RISK

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

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Matching financial mechanisms to funding needs

LOW RISK

Hard DevelopmentCapital

Working Capital (closed)

Pre-funding Capital Fundraising

Working Capital (open)

Soft Development Capital

HIGH RISK

INCREASING SUPPLY LITTLE SUPPLY

HIGH CHANCE OF REPAYMENT

LOW CHANCE OF REPAYMENT

Secured loan

Standby Facility

Overdraft

Unsecured Loan

Patient Capital

Quasi-equity

Equity

Grant

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Matching financial mechanisms to funding needs

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Who funds what?

Unsecured Loan

Overdraft

Quasi-equity

Equity

Grant

Pre-funding Capital

Fundraising

Working Capital (open)

Soft Development Capital

Standby Facility

LOW RISK HIGH RISK

Hard Development Capital

Increasing evidence of commercial finance available

Patient

Capital

Secured loan

Working Capital (closed)

LOW

CHANCE OF REPAYMENT

HIGH

CHANCE OF REPAYMENT

Need for further supply of capital and development of financial instruments

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Charity or business?

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Social enterprise

What is “social enterprise”?

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Model 1

“Profit Generator”

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Model 2

“Trade off financial and social returns”

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Model 3

“Lock-step”

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The investor universe

+ 8%

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The investor universe

+ 8%

Market-rate return

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The investor universe

+ 8%0%

Market-rate return

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The investor universe

+ 8%0%

Market-rate returnCapital-protected

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The investor universe

- 100% + 8%0%

Capital-protected Market-rate return

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The investor universe

- 100% + 8%0%

Capital-protected Market-rate returnGrant-makers

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The investor universe

- 100% + 8%0%

Capital-protected Market-rate returnGrant-makers

- 15%

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The investor universe

- 100% + 8%0%

Capital-protected Market-rate returnGrant-makers

- 15%

?

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Successful social enterprise

IDEAS

PEOPLE FINANCE

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Effectiveness vs Efficiency

QUALITY

ACCESS COST

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The challenges to unlocking capital

Changing the grant-making mindset

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The challenges to unlocking capital

Changing the grant-making mindset Creating guarantee funds

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The challenges to unlocking capital

Changing the grant-making mindset Creating guarantee funds Using subordinated debt

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The challenges to unlocking capital

Changing the grant-making mindset Creating guarantee funds Using subordinated debt Creating retail social investment products

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The challenges to unlocking capital

Changing the grant-making mindset Creating guarantee funds Using subordinated debt Creating retail social investment products Exploring the negative return spectrum

(c) Venturesome 2009

The challenges to unlocking capital

Changing the grant-making mindset Creating guarantee funds Using subordinated debt Creating retail social investment products Exploring the negative return spectrum

The emergence of a new financial services industry around social enterprises

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“Not everything that counts can be counted. And not everything that

can be counted, counts.”

Albert Einstein

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Case studies – working capital

Mental Health Media (2006) low reserves but refocusing of activities required unrestricted funds to

meet expenditure open working capital needed standby facility of £50,000 remains undrawn as funds were raised as expected

Questscope (2004) grants from World Bank and EU up to 14 months late, resulting in

significant working capital problems closed working capital needed unsecured loan of £60,000 repaid in full once grant payment was received

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Case studies – development capital

Women Like Us (2005) budget shortfall plus a cashflow difficulty arising from committed

funding being paid in arrears open working capital and soft development capital needed £25,000 standby facility and £25,000 unsecured loan £20,000 drawn down, being repaid monthly Facility extended in 2007; £50,000 standby facility offered

Charity Technology Trust (2007) transitioning from grant-dependency to a more commercial model soft development capital needed £50,000 in the form of a Revenue Participation Right first payment expected April 2008

(c) Venturesome 2009

Case studies – pre-funding of fundraising

St. Cuthbert’s Church (2003) third phase of extensive redevelopment project required building

contracts to be signed, but fundraising was not 100% committed pre-funding of fundraising £80,000 standby facility undrawn, facility ‘recycled’ facility renewed 2007 £50,000 underwriting ahead of BLF grant undrawn, facility recently recycled

(c) Venturesome 2009

Contact details:

Paul Cheng

pcheng@cafonline.org+44 207 832 3056