Venturesome – social purpose finance



Paul Cheng
Investment Manager, Venturesome

The text in this document may be repro...
Agenda

 Introduction to Venturesome

 Funding needs and financial mechanisms

 The challenges of unlocking capital

 ...
Venturesome: filling a funding gap


 Charities are undercapitalised
     Weak balance sheets
     There are no social ...
Mad money – the irrational world of charity
finance

   Surpluses are bad
   Cash is restricted
   Price does not have ...
Our track record


 Since 2002, we have offered over £12m to over
  200 charities
 Default rate is very low: <5%
 We ar...
The spectrum of venture capital involvement



              Mainstream VC      Specialist VC   VC / Social         Social...
The spectrum of venture capital involvement



              Mainstream VC      Specialist VC   VC / Social         Social...
Helping individual charities – what we offer


1. Working capital to cover cash flow fluctuations

2. Development capital ...
Main financial mechanisms used by Venturesome


 Underwriting / standby facilities
    undertaking to provide financing ...
Matching financial mechanisms to funding needs




                      (c) Venturesome 2009
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT




LOW
CHANCE OF
REPAYMENT
                    ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan




LOW
CHANCE OF
REPAY...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs


HIGH
CHANCE OF
REPAYMENT
            Secured loan


            Standby
 ...
Matching financial mechanisms to funding needs




                      (c) Venturesome 2009       15
Who funds what?

HIGH                                                                           Increasing evidence
CHANCE...
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%
                                           ...
The investor universe




                                           0%        + 8%
                                      ...
The investor universe




                                           0%             + 8%
                                 ...
The investor universe




- 100%                                        0%             + 8%
                              ...
The investor universe




 - 100%                                          0%             + 8%
Grant-makers               ...
The investor universe




 - 100%              - 15%                       0%             + 8%
Grant-makers               ...
The investor universe




 - 100%              - 15%                        0%             + 8%
Grant-makers           ?  ...
Successful social enterprise



                  IDEAS




    PEOPLE                                 FINANCE


         ...
Effectiveness vs Efficiency



                QUALITY




    ACCESS                                  COST


            ...
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




                  ...
The challenges to unlocking capital

 Changing the grant-making mindset
 Creating guarantee funds
 Using subordinated d...
The challenges to unlocking capital

   Changing the grant-making mindset
   Creating guarantee funds
   Using subordin...
The challenges to unlocking capital

   Changing the grant-making mindset
   Creating guarantee funds
   Using subordin...
The challenges to unlocking capital

   Changing the grant-making mindset
   Creating guarantee funds
   Using subordin...
“Not everything that counts can be
  counted. And not everything that
      can be counted, counts.”



         Albert Ei...
Case studies – working capital


   Mental Health Media (2006)
      low reserves but refocusing of activities required ...
Case studies – development capital


   Women Like Us (2005)
      budget shortfall plus a cashflow difficulty arising f...
Case studies – pre-funding of fundraising


   St. Cuthbert’s Church (2003)
      third phase of extensive redevelopment...
Contact details:

 Paul Cheng

 pcheng@cafonline.org
 +44 207 832 3056
                        (c) Venturesome 2009
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Venturesome Social Purpose Finance 2009

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Venturesome Social Purpose Finance 2009

  1. 1. Venturesome – social purpose finance Paul Cheng Investment 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.
  2. 2. Agenda  Introduction to Venturesome  Funding needs and financial mechanisms  The challenges of unlocking capital  Case studies (c) Venturesome 2009 2
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. The spectrum of venture capital involvement Mainstream VC Specialist VC VC / Social Social / VC Philanthropy PHILANTHROPIC COMMERCIAL DRIVERS DRIVERS SOCIAL / Environmenta l Commercial Social sustainability, Community Venture Investment in Enterprise CSR and SRI Development Philanthropy / Social / Investment / consideration Venture Charitable Environmenta Social s for Capital Initiatives l Sectors Venture Mainstream Capital VC Investors (c) Venturesome 2009
  7. 7. The spectrum of venture capital involvement Mainstream VC Specialist VC VC / Social Social / VC Philanthropy PHILANTHROPIC COMMERCIAL DRIVERS DRIVERS SOCIAL / Environmenta l Commercial Social sustainability, Community Venture Investment in Enterprise CSR and SRI Development Philanthropy / Social / Investment / consideration Venture Charitable Environmenta Social s for Capital Initiatives l Sectors Venture Mainstream Capital VC Investors Venturesome (c) Venturesome 2009
  8. 8. 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
  9. 9. 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
  10. 10. Matching financial mechanisms to funding needs (c) Venturesome 2009
  11. 11. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT LOW CHANCE OF REPAYMENT (c) Venturesome 2009
  12. 12. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan LOW CHANCE OF REPAYMENT (c) Venturesome 2009
  13. 13. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility LOW CHANCE OF REPAYMENT (c) Venturesome 2009
  14. 14. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft LOW CHANCE OF REPAYMENT (c) Venturesome 2009
  15. 15. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW CHANCE OF REPAYMENT (c) Venturesome 2009
  16. 16. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan Patient Capital LOW CHANCE OF REPAYMENT (c) Venturesome 2009
  17. 17. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan Patient Capital Quasi-equity LOW CHANCE OF REPAYMENT (c) Venturesome 2009
  18. 18. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan Patient Capital Quasi-equity Equity LOW CHANCE OF REPAYMENT (c) Venturesome 2009
  19. 19. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan Patient Capital Quasi-equity Equity LOW CHANCE OF Grant REPAYMENT (c) Venturesome 2009
  20. 20. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Patient Capital Quasi-equity Equity LOW CHANCE OF Grant REPAYMENT (c) Venturesome 2009
  21. 21. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Hard Patient Development Capital Capital Quasi-equity Equity LOW CHANCE OF Grant REPAYMENT (c) Venturesome 2009
  22. 22. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Hard Working Patient Development Capital Capital Capital (closed) Quasi-equity Equity LOW CHANCE OF Grant REPAYMENT (c) Venturesome 2009
  23. 23. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Hard Working Pre-funding Patient Development Capital Capital Capital Capital (closed) Fundraising Quasi-equity Equity LOW CHANCE OF Grant REPAYMENT (c) Venturesome 2009
  24. 24. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Hard Working Pre-funding Working Patient Development Capital Capital Capital Capital Capital (closed) Fundraising (open) Quasi-equity Equity LOW CHANCE OF Grant REPAYMENT (c) Venturesome 2009
  25. 25. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Hard Working Pre-funding Working Soft Patient Development Capital Capital Capital Development Capital Capital (closed) Fundraising (open) Capital Quasi-equity Equity LOW CHANCE OF Grant REPAYMENT (c) Venturesome 2009
  26. 26. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Hard Working Pre-funding Working Soft Patient Development Capital Capital Capital Development Capital Capital (closed) Fundraising (open) Capital Quasi-equity Equity LOW CHANCE OF Grant REPAYMENT (c) Venturesome 2009
  27. 27. Matching financial mechanisms to funding needs HIGH CHANCE OF REPAYMENT Secured loan Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Hard Working Pre-funding Working Soft Patient Development Capital Capital Capital Development Capital Capital (closed) Fundraising (open) Capital Quasi-equity Equity LOW Grant INCREASING SUPPLY LITTLE CHANCE OF REPAYMENT SUPPLY (c) Venturesome 2009
  28. 28. Matching financial mechanisms to funding needs (c) Venturesome 2009 15
  29. 29. Who funds what? HIGH Increasing evidence CHANCE OF Secured loan of commercial REPAYMENT finance available Standby Facility Overdraft Unsecured Loan LOW RISK HIGH RISK Working Pre-funding Hard Working Soft Capital Capital Patient Development Capital (open) Development (closed) Capital Fundraising Capital Capital Quasi-equity Equity LOW Need for further supply CHANCE OF of capital and REPAYMENT Grant development of financial instruments (c) Venturesome 2009 16
  30. 30. Charity or business? (c) Venturesome 2009
  31. 31. Social enterprise What is “social enterprise”? (c) Venturesome 2009
  32. 32. Model 1 “Profit Generator” (c) Venturesome 2009
  33. 33. Model 2 “Trade off financial and social returns” (c) Venturesome 2009
  34. 34. Model 3 “Lock-step” (c) Venturesome 2009
  35. 35. The investor universe + 8% (c) Venturesome 2009
  36. 36. The investor universe + 8% Market-rate return (c) Venturesome 2009
  37. 37. The investor universe 0% + 8% Market-rate return (c) Venturesome 2009
  38. 38. The investor universe 0% + 8% Capital-protected Market-rate return (c) Venturesome 2009
  39. 39. The investor universe - 100% 0% + 8% Capital-protected Market-rate return (c) Venturesome 2009
  40. 40. The investor universe - 100% 0% + 8% Grant-makers Capital-protected Market-rate return (c) Venturesome 2009
  41. 41. The investor universe - 100% - 15% 0% + 8% Grant-makers Capital-protected Market-rate return (c) Venturesome 2009
  42. 42. The investor universe - 100% - 15% 0% + 8% Grant-makers ? Capital-protected Market-rate return (c) Venturesome 2009
  43. 43. Successful social enterprise IDEAS PEOPLE FINANCE (c) Venturesome 2009
  44. 44. Effectiveness vs Efficiency QUALITY ACCESS COST (c) Venturesome 2009
  45. 45. The challenges to unlocking capital  Changing the grant-making mindset (c) Venturesome 2009
  46. 46. The challenges to unlocking capital  Changing the grant-making mindset  Creating guarantee funds (c) Venturesome 2009
  47. 47. The challenges to unlocking capital  Changing the grant-making mindset  Creating guarantee funds  Using subordinated debt (c) Venturesome 2009
  48. 48. The challenges to unlocking capital  Changing the grant-making mindset  Creating guarantee funds  Using subordinated debt  Creating retail social investment products (c) Venturesome 2009
  49. 49. 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
  50. 50. 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
  51. 51. “Not everything that counts can be counted. And not everything that can be counted, counts.” Albert Einstein (c) Venturesome 2009
  52. 52. 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
  53. 53. 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
  54. 54. 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
  55. 55. Contact details: Paul Cheng pcheng@cafonline.org +44 207 832 3056 (c) Venturesome 2009

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