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psPM6: Financing your charity: how can social investment work for you?

Chair:Caron Bradshaw, Chief Executive, Charity Finance Group

Speakers:Geetha Rabindrakumar, Social Sector Leader, Big Society CapitalMike Niedzwiecki, Investment Readiness Manager, Social Investment BusinessJulian Price, Managing Director, Revive CICCarolyn Sims, Head of Banking, Charity Bank

NCVO - Evolve 2014Financing your charity: how can social investment work for you?Geetha Rabindrakumar

@BigSocietyCap grabindrakumar@bigsocietycapital.com

What is social investment?

• Financial returnInvestment

• Financial return&

• Social return

Social investment

• Social returnPhilanthropy

Why social investment? For your charity, investment can:

• Be more flexible than grants

• Enable charity to direct donation income to where most needed

• Bring business discipline (effectiveness)

• Bring wider support and engagement with your cause

• Bring involvement/expertise from motivated investors

For the sector:• Recycle money available• Attract additional funding

Early considerations

• What do you need investment for?o Purchasing/refurbishing assetso Working capital (e.g. to support payments by results

contract)o Bridging finance (e.g. confirmed grant)o Expand existing work/ deliver new services

• Is there an income stream?

• What social impact are you seeking to create?

Organisation Activities Outputs Outcomes Impact

BSC role as investment wholesaler & market champion

Social Investment Finance Intermediaries

Social Funds

Social Lenders

Investment Readiness

Advisers

Social Impact Bonds

General funds

Specialised funds

For reference

• Submit online queries to BSC investment teamhttp://www.bigsocietycapital.com/ask-us-question

• Grant support to prepare for investment:Big Potential http://www.sibgroup.org.uk/bigpotential/ICRF - http://www.beinvestmentready.org.uk/social-ventures/

• Sources of funding currently open:http://www.bigsocietycapital.com/sources-investment

• Directory of social finance providers and advisers (can filter for specific requirements):http://www.bigsocietycapital.com/finding-the-right-investment

• NCVO guide and toolhttp://www.fundingcentral.org.uk/Page.aspx?SP=6059

• Big Lottery Guide to social investment (summer 2014)• CFG event on social investment – 27 November 2014

For info/discussion in Q&A

Stage of development

OCS Social Incubator

Fund(£10m) 

Big Venture Challenge (>£5m)

CO ICRF (£10m)

Stage of business growth

Commissioning/revenue support

 

Secured Loans

Unsecured Loans

 

 Equity

  

Grant

Restricted Grant

Social Investment Funds (~£20m)

Start up Early GrowthEstablished

Type

of c

apita

l

BIG Potential(£10m)

CO Outcomes Fund (£10m)

BLF Outcomes Fund (£40m)

Fully or partly funded by government

Fully or partly funded by Big Lottery Fund

Partly capitalised by Big Society Capital

Other

Grant programmes from Charitable Trusts and Foundations (>£2bn)

Social Banks (~£180m)

Tech for Good

(£500K) 

Social Impact Bonds Financial risk transfer to investors

SIB SPV

Investment into SIB programme

Payments represent a % of

cost savingsInvestors Commissioner (e.g. LA)

Delivery programme (could include peer support, group

activity, CBT for most isolated)

Lead delivery charity

Payment metric:Reduction in

loneliness

Eg: Social Finance - Investment in services to reduce loneliness – benefits of reduced service use and improved health outcomes

• Pressing social need

• Engaged commissioner

• Complex social outcome to evidence Reduced loneliness

Becoming investment ready

Mike NiedzwieckiInvestment Readiness Manager

• Access to investment capital is the greatest single barrier to social ventures’ start-up and growth.

• Government wants more social ventures creating more social impact.• Government has sought to grow the social investment market, from

setting up BSC (supply), to opening up public sector markets (demand).

• Many social ventures are not however in a position to:• Raise or take on external repayable investment.• Bid for or manage public sector contracts.

• Need to become ‘investment ready’

Investment Readiness – context and need

• Some organisations might need additional support before taking on social investment for the first time – this is called investment readiness support

• This tends to focus on key areas:-- people (skills + experience)-- what you do + who your customers are (market)-- how you do things + how well (impact / track record)-- finances (state / management)

• SIB manages two programmes – Big Potential and the Investment and Contract Readiness Fund

Becoming investment ready: what does this mean?

• About BIG Potential

• Who is eligible?

• Diagnostic Tool

• Book a business advisor session

• Choose a support provider

• Apply for a grant

Introducing Big Potential

• New £10m grant fund from Big Lottery Fund managed by the Social Investment Business

• Helping organisations become more sustainable, build capacity as well as consider repayable investment for the first time

• For VCSEs in England aspiring to raise up to £500,000 new investment

Introducing Big Potential

• Chance to skill up • Space to consider the added value of social

investment• Fully supported diagnostic service – including a

helpful online tool and an in-depth 1:1 session with an expert advisor

• Grants of between £20,000 and £75,000 for specialist business support to help raise new investment

• Brand new website with lots of helpful resources and information about social investment

What will Big Potential offer?

• Not just skilling up – opportunity to actually raise new investment

• Fully supported application process – diagnostic service that supports organisations looking at social investment for the first time

• Access to high quality specialist support – from the fund’s approved providers that have a proven track record to helping similar organisations successfully raise new investment

What is unique about Big Potential?

How to apply

1. Operating and working in England.2. A VCSE organisation 3. Track record of products/services that bring about charitable outcomes or health,

environmental or education benefits.4. Have ambition and potential to raise up to £500,000 (repayable) investment. 5. Have potential to develop activities to generate financial and social returns for

investors.6. Be financially healthy and be able to meet their core costs during the lifetime of the

grant.7. Not for religious or political purposes. 8. May need to make a contribution to the costs of their project

ACTION: Visit www.sibgroup.org.uk/bigpotential/eligibility to start

1. Check your Eligibility

• This detailed diagnostic tool helps VCSEs start thinking about how investment ready they might be.

• It asks some key questions about five key areas of your organisation, including its financial position, its people, governance, customers, impact and quality of processes

• Get a quick investment readiness report at the end that identifies which areas might need improvement before applying for investment

ACTION: Complete diagnostic tool assessment by visiting sibgroup.org.uk/bigpotential/diagnostic.

2. Assess: Your Diagnostic Tool

• VCSEs will meet a support advisor to go deeper into the diagnostic tool assessment.

• Better understand what it means to be investment ready and what you need to do to achieve it.

• Receive a detailed investment readiness report after the 1:1 session, which will describe the business development support needed and some suggestions and full guidance on choosing an appropriate provider.

• Session can be done face-to-face or over Skype.

ACTION: Book and attend an intensive two-hour session with support advisor.

3. Attend: Your 1:1 session

• Can apply for a preliminary or investment plan grant.• Choose an approved provider to undertake investment readiness project

and then the VCSE makes an application to the fund. • The investment readiness project can start with a smaller development

project, followed by a more in-depth Investment Plan project. On some occasions VCSEs may apply directly for an investment plan grant when they and their provider agree that an investment deal is in sight.

ACTION: Choose your approved provider to prepare the application together but the VCSE must complete and submit the application form.

4. Apply: Find a provider

• Successful VCSE organisations will be offered a grant to help start their investment readiness project.

• You will receive grant offer documents from us. Once these are completed and returned to us you will receive your first grant payment.

• Provide on-going monitoring information. Also participate in evaluation of Big Potential and contribute to case studies.

ACTION: Accept the grant offer and return required documents to complete grant contract.

5. Outcome: What next?

• Online: www.sibgroup.org.uk/bigpotential • Phone: 0207 842 7788• Email: bigpotential@sibgroup.org.uk • Twitter: @TheSocialInvest

Get your copy of the Big Potential programme guidance now!

Start your Big Potential journey

• £10m from the Cabinet Office.• April 2012 – March 2015 (3 year Fund).• £50,000 to £150,000 grants• Applications open till at least September 2014.• Social ventures have to work in partnership with an

approved investment / contract readiness provider.

Investment and Contract Readiness Fund (ICRF)

• Social ventures seeking to raise investment of at least £500,000 or win contracts of at least £1million.

• Social ventures :• Tackle social problems.• Financially sustainable.• Aim to scale what works.• Charities, social enterprises, community and voluntary

orgs, social businesses, mutuals.• Grants of £50,000 - £150,000 to purchase specialised

support and to cover some of the costs of putting the ICR plan into action.

• England only.

Criteria: who can apply

Discuss proposal

Approved provider

Application ProcessSocial ventures looking to grow and business advice providers with a track record in investment or contract readiness work can apply.

Apply

Find a provider

Apply for approval

Experience in providing

investment/contract readiness services?

Looking to raise £500K investment or win £1m contract?

General fund statisticsApproved 94 grants averaging £100,000 each and spent £8.9 million. • 42 investment readiness grants worth £4 million• 51 contract readiness grants worth £4.8 million• 1 for investment and contract readiness• Some 74 ventures are still actively carrying out their business support

programmes.

High level statistics (to date)

Top sectors (value of grants)1. Education / training2. Health and social care3. Children and young people4. Crime and offending5. Disability6. Older people7. Counselling / advocacy8. Environmental9. Arts / cultural

6%4%

13%

27%

4%

10%

11%

6%

11%

9%

East MidlandsEasternEngland wideLondonNorth EastNorth WestSouth EastSouth WestWest MidlandsYorkshire & the Humber

Reasons for applying to ICRF

0

20

40

60

# of respondents

910

45

25

54

11

19

39

22%

64%53%

12% 11%

29%

13%

46%

1810

2233 37

61 64

44

27 4028

28 24

20 2044

50 5039 39

18 16 11

55

100

0

20

80

40

60

% of respondents

Neither agreenor disagree

Disagree

Agree

Raise i

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What were your primary goals when applying to the Investment and Contract

Readiness Fund (ICRF)?

'Prior to our ICRF application, our organisation had the skills and knowledge to effectively...'

64% of survey respondents were looking to raise investment

Ventures were less confident on technical issues (law, governance etc.)

Note: Left hand chart, n = 85, right hand chart n varies from 54 to 9Source: BCG ICRF Feedback Survey

Half of ventures 'Strongly agree' that they would have been unable to carry out the work without the ICRF

73%

88%

61%72%

18%

10%

29%15%

9% 10% 13%100

80

60

40

20

0'Our provider's work is of consistently high quality.'

2%

'The work of our provider has met or exceeded the

level of support proposed in our

application.'

% of respondents

'Our organisation would have been

unable to pursue the work carried out in

the business support phase without funding

from the ICRF.'

'Our provider's work represents good value for

money.'

Note: n = 82Source: BCG ICRF Feedback Survey

Disagree

Neither agree nor disagree

Agree

Ventures are already benefitting from support, with some looking for more support in the future

7%

100

80

60

40

20

0

% of respondents

Other positive outcome

Yes, directly helped uswin contracts

Yes, directly helped usraise investment

No outcome yet, expected to directly improvement investment readiness

No outcome, none expected as a direct result

20%

16%

56%

2%

7%

7%100

80

60

40

20

0

% of respondents

Funded the work ourselvesor re-applied withincreased self-funding

Sought other sources offunding and not proceedwithout external funding

Attempted to reapplywith a different provider

Attempted to reapplywith the same provider

Not pursued this work

13%

24%

48%

What is the quantifiable outcome of the business

support provided to date?

In practice, the length of our business support phase

is:

If our application had been unsuccessful, we would have

most likely:

40% have already had clear impact

28% would prefer support for longer

80% would have reapplied or found other funding

Note: Left hand chart n = 53, middle chart, n = 61, right hand chart n = 54Source: BCG ICRF Feedback Survey

100

40

80

0

20

60

58%

Unable to commenton length at this time

Longer than necessaryfor our objectives2%

Appropriate forour objectives

Too short tomeet our objectives

% of respondents

28%

11%

ICRF engagement has left a positive impact on ventures, which are less likely to need further support

70

22

7

60

80

20

40

100

0

Agree

Neither agreenor disagree

Disagree

% of respondents

59

20

21

100

80

60

0

20

40

% of respondents

Agree

Neither agreenor disagree

Disagree

'Our experience with the ICRF has given us the knowledge and skills to require less

external support in the future.'

'Our experience with the ICRF will have a positive, long-term impact on

our organisation.'

70% of ventures are more self-reliant 60% have had a lasting impact

Note: Left hand chart n = 54, right hand chart n = 81Source: BCG ICRF Feedback Survey

• Grant £95,836• Covered: market analysis for new services,

business/growth plan• Investment raised: £1.3 million (£1.1m 25 year loan and

£200,000 asset finance deal)• Towards:

- construction of new facilities- buying and refurbishing accommodation- equipment for refurbished community building.

Investment readiness case study: Foresight (North East Lincolnshire)

NCVO – Evolve Conference 2014Financing your charity – how can social investment

work for you?

Charity Bank

“I do not have very much money to invest or to give and Charity Bank enables me to contribute to good projects despite this difficulty.”

Quote from a Charity Bank depositor

Loan Finance – the benefits

• Enables a project to be delivered NOW • Can avoid potential increase in costs • Unable to obtain grant funding• Lending against pledges/retrospective grants• Independence

The providers:

• Social lenders• CDFIs• Community Foundations• High Street banks• Specialist lenders

A different bank for people who want a different world

What information to provide:

• Details and skills set of trustees• Background information• Three years annual accounts (if available)• Management accounts• Budget / forecast profit & loss account• Details of loan requirement

40

What do we look for:

• Evidence of social impact• Ability to repay • Well thought out plan• Robust financial projections• Buy in of both management team and trustees• Market testing / competitor analysis• Third party support of project

41

Matters of concern (1)

• Number of trustees• Appropriate skill set of trustees• Quality of management• Over reliance on key individuals• Loss of public sector funding

42

Matters of concern (2)

•Diversified income streams - community cafes are not necessarily the answer•Proper transfer of risk in contracts•Stress testing business plans•Pension liabilities•Optimism over realism

Loan Finance – the small print

• Loan term• Secured or Unsecured • Secured on property or other assets• Loan to value• Borrowing rate• Fees• Covenants

Points to be aware of:

• Trustee guarantees• Pre-drawdown conditions• On-going financial covenants• On-going information requirements• Breakage costs• Events of default• Cross default clauses

Carolyn Sims – Head of Bankingcsims@charitybank.org

Community Interest Company

• Not For Profit (4.1 the company is not established for private gain: any profits or assets are used principally for the benefit of the community)

• Environmental • Assist Young

People & the Long Term Unemployed in to Employment

Loan Finance Experience

Before the loan

• Charity Bank • Lender needs to know your business• Critical friend• Loan application focuses business idea• Business Plan• Why will your business idea work• Prove your idea will work• Relevant skills and experience of people involved

After the loan

• Continue to develop the relationship with your lender

• The real work starts• Stick to your plan• There will be challenges• Learn from the experience• You might need further finance

Evolve 2014