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A session exploring how using capital helps diversify income streams, in time of economic pressure.
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Social investment: five case studies
May 2011
Rob Hodgkinson, Investment Executive, VenturesomeCasey Lord, Investment Analyst, Venturesome
Revenue is distinct from capital
Income / revenueCovers the costs of expenditure of ongoing work (service provision, projects etc.)Suppliers of income = purchasers of charities’ work
CapitalMoney and other resources that enable organisations to deliver their service / project / workCapital funders = investors in organisations
Charities require access to capital
Charities are undercapitalisedFunding is primarily available in the form of revenue / income fundingFew organisations are able to create a surplus that could then be set aside as reserves
Charities require access to external capital in a variety of forms and from a range of sources
What Venturesome offers
Bridging finance
Pre-funding of fundraising
Working capital
Growth capital
Bridging finance
Forecast cash shortfall, typically due to grant payment in arrears
Similar to an overdraft facility; unsecured loan
Facility remains undrawn in many cases
Repaid in one tranche upon payment of the committed grant
Bridging finance: cashflow excluding facility
(25,000)
(20,000)
(15,000)
(10,000)
(5,000)
-
5,000
10,000
15,000
20,000
25,000
1 2 3 4 5 6 7 8 9 10 11 12
Case study: The Andrew Lees Trust
The Andrew Lees Trust manages programmes in Madagascar aimed at educating and empowering local communitiesRequired funding to complete the community radio programme and drought mitigation programme ahead of final EU grant paymentsVenturesome provided an £85,000 bridging loan to underpin cashflowFull loan and interest repaid upon receipt of the EU grant payment
Pre-funding of fundraising
Enables charities and social enterprises to start capital expenditure programmes immediately and fundraise at a later date
Strong fundraising team and pipeline is required
Eliminates risk of contract costs increasing
Unsecured loan
Repaid upon receipt of fundraising income
Pre-funding of fundraising: cashflow excluding facility
(60,000)
(50,000)
(40,000)
(30,000)
(20,000)
(10,000)
-
10,000
20,000
1 2 3 4 5 6 7 8 9 10 11 12
Case study: Wollaston Association of Youth
WAY is a collaboration of three youth organisations in the village of Wollaston, established to develop a more suitable buildingWAY already raised £170,000 for the project from a community share issue and from the County CouncilVenturesome provided a £75,000 facility to proceed with the building project during the summer months WAY will repay with future fundraising income
Working capital
Forecast cashflow shortfall, typically due to contractual payment in arrears
Similar to factoring
Unsecured loan
Repaid in equal monthly instalments over 3-5 years
Working capital: cashflow excluding facility
(10,000)
(5,000)
-
5,000
10,000
15,000
20,000
25,000
30,000
1 2 3 4 5 6 7 8 9 10 11 12
Case study: Fairtrade Foundation
Fairtrade Foundation grown rapidly since launchSignificant working capital requirement to pay for certification costs ahead of income, particularly with large contracts with Cadbury and NestleApproached Venturesome for a working capital facilityFully repaid Venturesome loan at end of facility
Growth capital
Organisation has demonstrated proof-of-concept and been trading for at least twelve months
Capital requirement to fuel next stage of growth; unsecured loan
Typically earned income
More onerous social impact indicators
Repaid in equal monthly instalments over 3-5 years
Case study: FareShare
FareShare is a national charity that redistributes quality surplus food from the food and drink industry to organisations working with vulnerable people in the communityVenturesome provided a £50,000 working capital loan to FareShare in 2008. This has now been fully repaidFareShare later approached Venturesome for a £200,000 facility to expand the number of depots across the UK
Quasi-equity
High growth potential organisations
Substitute for equity in trading charities
Revenue Participation Agreement: Venturesome earns percentage of future revenue
Target IRR of 10%; maximum of 2.0x initial investment
Quasi-equity: income profile
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1 2 3 4 5 6 7 8 9 10 11 12
Total income Venturesome income
Case study: Global Action Plan
GAP works for the protection and improvement of the environment through practical activitiesTwo previous Venturesome facilities which were repaid in fullIn November 2007, Venturesome invested £75,000 as quasi-equity to double turnover in five yearsVenturesome paid over £60,000 with four years of future income remaining
Venturesome key facts
Since 2002, we have offered £20m to some 270 small- and medium-sized charities
Cumulative default rate of less than 5%
We are currently managing a £10m fund for 14 investors
We learn from our investment in charities, and share this learning with the wider social investment market. See our publications at www.venturesome.org
Contact information
Rob Hodgkinson, Investment ExecutiveEmail: rhodgkinson@cafonline.orgPhone: 03000 123 225
Casey Lord, Investment AnalystEmail: clord@cafonline.orgPhone: 03000 123 279
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