Casey Lord, CAF Venturesome & Julie Roberts, HelpAge International

Creative financing: building complex investment models Casey Lord Investment Manager, CAF Venturesome Julie Roberts Marketing and Fundraising Manager, HelpAge International 24 th November 2011

Agenda
The funding environment for charities is changing – many charities are choosing to diversify their income
Social investment can help organisations grow and innovate
Loans cannot replace grants – social investment can only be used in certain scenarios (growth, transition, working capital) and should always complement other sources of income

Revenue is different to capital
Income / revenue
Covers the costs of expenditure of ongoing work (service provision, projects etc)
Suppliers of income = PURCHASERS of your work
Capital
For asset purchase, growth/development, etc
Capital funders = INVESTORS in your organisation

Building vs. Buying

Understand your funding structure FUNDING STRUCTURE Restricted/unrestricted split?
Development / growth capital
Bridging loan to help manage the timing of contract income
Development capital to expand an established trading arm
Bridging loan to help manage the timing of grant receipts
Patient capital to invest in fundraising
Working capital loan
100% unrestricted i.e. trading income Mostly unrestricted i.e. transitioning to an earned-income model, weaning off grants 100% restricted i.e. grants Mostly restricted i.e. mostly grants, some trading income

What type of funding?
You!
Reserves
Social investors
Unsecured loan Funding Who provides it Grant
Grant makers, venture philanthropists
Quasi-equity (royalties)
Social investors
Overdraft / underwriting
Banks provide overdrafts
Venturesome provides underwriting
Secured loan / mortgage
Sector banks, high street banks

Matching financial mechanisms to funding needs Unsecured Loan Overdraft Quasi-equity Equity Grant Pre-funding capital fundraising Higher risk working capital Development capital Standby Facility LOW RISK HIGHRISK Property/Asset purchase (mortgage) Appropriate Funding (correlation) Patient Capital Secured loan Cashflow bridging LOW CHANCE OF REPAYMENT HIGH CHANCE OF REPAYMENT

Getting ready
Legal structure (is an SPV needed?)
Business plan
Numbers: financial modelling or scenario planning

Before approaching the investor….
This is ‘on mission’ for our organisation
Look how much experience we have
We’ve done our market research and there’s a good fit with our skills, the current environment and the market gap
Lots of people have been involved in getting us to this point
There’s strong ownership from the Board
Staff are really enthused
This would really help our beneficiaries, here’s what they think…
We understand the numbers
We know it will take time

Exercise!

Case Study 1

HelpAge International
The challenge of an ageing world
100 million older people have less than $1 a day
Carers, leaders and catalysts for change
By 2050 1 in 5 of the world’s people will be over 60
80% of them will be in developing regions
HelpAge International is the only global charity focused on older people

Creating the right funding structure to meet the challenge Unrestricted DEC & appeals Institutional grants Age UK restricted

The big idea: fundraising in new markets

Wanted: £1m
CAF Venturesome £300,000 loan
Charitable trust: £150,000 interest free loan
Network partner: £150,000 interest free loan
HelpAge International: £150,000 from own unrestricted
Yet to raise: £125,000 – £250,000

Managing risk
Market research
Piloting the idea and staging the investment
Design the fundraising programme to limit our risk
Fixed thresholds for continuing the project
Board and SMT monitor via Risk Register

Lessons (so far)
It’s not impossible!
Securing a ‘lead’ investor helps
Gives confidence to other investors
They can help you create a better investment plan
Risking some of your own funding is key
A mix of loans and grants gives more flexibility to deal with changes

Case Study 2

Fair Finance
Fair Finance provides micro loans to individuals and small businesses in East London
Launched in 2005
By 2009, Fair Finance had reached the limits of how far it could grow whilst relying solely on grants and trading income

How to scale up beyond grants?
Need to grow loan book to achieve profitability and scale
Existing grant funding nowhere near the scale of expansion need
Clear need to raise social investment

Raise the right type of finance
Separate out business activities and match different forms of finance for different parts of the business
Bank Debt to fund the loan book
‘ Leveraging Loan’ to increase the portfolio
Equity or quasi-equity to fund operating & expansion costs
Grants still required to support purely charitable activities of FF (e.g. Debt advice)

Leveraging mechanism Commercial terms Benefit from ‘first loss’ cover provided by social investors Grants focused solely on areas where needed most Social investment unlocks commercial finance, thereby increasing the scale and social impact

The financing package raised by FF
£750k Quasi-equity
Social investors: HNWIs, CAF Venturesome
£350k Leveraging Loan
Big Society Finance Fund (NESTA)
£2mn Commercial Bank Facility
SocGen, BNP Paribas, Santander

Imaginative use of social investment
Social investment used to unlock commercial bank funding
Provides a possible template for other transactions in the CDFI sector
3 different scaleable models of financing
Largest commercially funded microfinance deal in Western Europe

Key to success
Strong business plan
Financial planning
But also…
Board and networks
Management team
“ The numbers have to be right but
people have to believe”

Be realistic!
‘ This time next year, we’ll be millionaires’
In five years’ time, this is where this plan takes us
We’ve tested the market
We’re clear on what financial and social success would look like
This is how we’re going to track progress
We know this will take time
We’ve identified the potential pitfalls
Here’s how we’re mitigating the risk and staggering investment
And if that doesn’t work, here are plans B, C and D
We’ve thought about the worse case scenario

CAF Venturesome
Since 2002, we have offered £24m to over 300 small- and medium-sized charities
Provide capital investment in the form of unsecured loans, underwriting and equity-like investments
To date, 96% of funds have been recycled, to be reinvested
Nine out of ten organisations have achieved or outperformed initial capacity building aims

Q&A Casey Lord [email_address] 03000 123 279 www.venturesome.org Twitter: @cafventuresome Blog: http://caf-venturesome.tumblr.com

Casey Lord, CAF Venturesome & Julie Roberts, HelpAge International

by NCVO - The National Council for Voluntary Organisations

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