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