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Venturesome – social purpose finance
Paul ChengInvestment Manager, Venturesome
The text in this document may be reproduced free of charge providing that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Venturesome copyright and the title of the document specified.
(c) Venturesome 2009 2
Agenda
Introduction to Venturesome
Funding needs and financial mechanisms
The challenges of unlocking capital
Case studies
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(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
(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
(c) Venturesome 2009
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
(c) Venturesome 2009
Matching financial mechanisms to funding needs
(c) Venturesome 2009
Matching financial mechanisms to funding needs
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
(c) Venturesome 2009
Matching financial mechanisms to funding needs
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
(c) Venturesome 2009
Matching financial mechanisms to funding needs
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
Standby Facility
(c) Venturesome 2009
Matching financial mechanisms to funding needs
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
Standby Facility
Overdraft
(c) Venturesome 2009
Matching financial mechanisms to funding needs
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
Standby Facility
Overdraft
Unsecured Loan
(c) Venturesome 2009
Matching financial mechanisms to funding needs
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
Standby Facility
Overdraft
Unsecured Loan
Patient Capital
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(c) Venturesome 2009
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
(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
(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
(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
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
(c) Venturesome 2009 15
Matching financial mechanisms to funding needs
(c) Venturesome 2009 16
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
(c) Venturesome 2009
Charity or business?
(c) Venturesome 2009
Social enterprise
What is “social enterprise”?
(c) Venturesome 2009
Model 1
“Profit Generator”
(c) Venturesome 2009
Model 2
“Trade off financial and social returns”
(c) Venturesome 2009
Model 3
“Lock-step”
(c) Venturesome 2009
The investor universe
+ 8%
(c) Venturesome 2009
The investor universe
+ 8%
Market-rate return
(c) Venturesome 2009
The investor universe
+ 8%0%
Market-rate return
(c) Venturesome 2009
The investor universe
+ 8%0%
Market-rate returnCapital-protected
(c) Venturesome 2009
The investor universe
- 100% + 8%0%
Capital-protected Market-rate return
(c) Venturesome 2009
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
(c) Venturesome 2009
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
- 15%
(c) Venturesome 2009
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
- 15%
?
(c) Venturesome 2009
Successful social enterprise
IDEAS
PEOPLE FINANCE
(c) Venturesome 2009
Effectiveness vs Efficiency
QUALITY
ACCESS COST
(c) Venturesome 2009
The challenges to unlocking capital
Changing the grant-making mindset
(c) Venturesome 2009
The challenges to unlocking capital
Changing the grant-making mindset Creating guarantee funds
(c) Venturesome 2009
The challenges to unlocking capital
Changing the grant-making mindset Creating guarantee funds Using subordinated debt
(c) Venturesome 2009
The challenges to unlocking capital
Changing the grant-making mindset Creating guarantee funds Using subordinated debt Creating retail social investment products
(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
(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
(c) Venturesome 2009
“Not everything that counts can be counted. And not everything that
can be counted, counts.”
Albert Einstein
(c) Venturesome 2009
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
(c) Venturesome 2009
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