So Cap2008 Presentation Final

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SiG@MaRS hosted a recap of the inaugural Social Capital (SoCap) Markets Conference held in October 2008 in San Francisco. Kerri Golden, Karim Harji, Michael Lewkowitz and Allyson Hewitt discussed the event, recent developments in the Social Finance marketspace, and the relevance of SoCap for Ontario and Canada.

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  • So Cap2008 Presentation Final

    1. 1. Social Capital Markets 2008 Recap – January 19, 2009 Kerri Golden, Karim Harji and Michael Lewkowitz
    2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>The Future of Social Capital Markets (Keynote review) </li></ul><ul><li>SoCap Recap </li></ul><ul><ul><li>The emerging marketplace </li></ul></ul><ul><ul><li>The role of measurement and metrics </li></ul></ul><ul><ul><li>An ecosystem of solutions </li></ul></ul><ul><ul><li>The future of investment funds </li></ul></ul><ul><ul><li>The evolution of deal-flow </li></ul></ul><ul><ul><li>The influence of social media and movements </li></ul></ul><ul><li>Implications for Ontario </li></ul><ul><li>Questions </li></ul><ul><li>Open Discussion </li></ul>
    3. 3. Introduction <ul><li>Welcome </li></ul><ul><li>What is SiG@MaRS? </li></ul><ul><ul><li>Systems Changing Initiatives </li></ul></ul><ul><ul><li>MaRS Advisory Services </li></ul></ul><ul><ul><li>Capacity Building </li></ul></ul><ul><li>Series of best practice events </li></ul><ul><ul><li>Past - Social Enterprise World Forum Debrief </li></ul></ul><ul><ul><li>Future - Skoll World Forum  </li></ul></ul><ul><li>  Present - Social Capital Markets ReCap  </li></ul><ul><ul><li>Karim - Michael - Kerri </li></ul></ul>
    4. 4. The Future of Social Capital Markets Katherine Fulton October 2008
    5. 5. A convergence of forces Money seeking diversification Values driven investors and consumers Growing inequity and environmental crisis Track record of early success Openings for policy change Talent pushing new careers Investing for impact is now “ locked in” CAN IT TAKE OFF?
    6. 6. Will the promise of this moment be realized? Phases of Industry Evolution <ul><ul><li>Disparate entrepreneurial activities spring up in response to market need or policy incentives </li></ul></ul><ul><ul><li>Disruptive innovators may pursue new business models in seemingly mature industries </li></ul></ul><ul><ul><li>Characterized by lack of competition except at top end of market </li></ul></ul><ul><ul><li>Centers of activity begin to develop </li></ul></ul><ul><ul><li>Infrastructure is built that reduces transaction costs and supports a higher volume of activity </li></ul></ul>Uncoordinated Innovation Marketplace Building <ul><ul><li>Growth occurs as mainstream players enter a functioning market </li></ul></ul><ul><ul><li>Entities are able to leverage the fixed costs of their previous investments in infrastructure across higher volumes </li></ul></ul><ul><ul><li>Organizations may become more specialized </li></ul></ul>Capturing the Value of the Marketplace Maturity <ul><ul><li>Activities reach a relatively steady state and growth rates slow </li></ul></ul><ul><ul><li>Some consolidation may occur </li></ul></ul>Impact investing today Impact investing in 5-10 years?
    7. 8. The question for today is whether the bar will be set high enough —whether pioneering leaders will provide the talent, discipline and resources that will be needed to create a coherent marketplace with high standards for impact .
    8. 9. Investing for Impact: The Risk is that It Will Be… <ul><ul><li>too HARD to do </li></ul></ul><ul><ul><li>Insufficient compensation for risk results in lack of interest in impact investing </li></ul></ul><ul><ul><li>There may not be enough good deals </li></ul></ul><ul><ul><li>Execution proves to be too difficult </li></ul></ul><ul><ul><li>The economics ultimately may not clear in most areas </li></ul></ul><ul><ul><li>Hype creates a bubble, especially from overpromising </li></ul></ul><ul><ul><li>too EASY to do </li></ul></ul><ul><ul><li>The current financial markets and incentives create a major pull toward “greenwashing” and dilution of standards. </li></ul></ul><ul><ul><li>The very premise of having a positive impact is undermined and the industry is discredited </li></ul></ul>
    9. 10. Segments of Impact Investors Solely Profit-Maximizing Investing Philanthropy “ Yin-Yang” Deals <ul><ul><li>Financial Return </li></ul></ul><ul><ul><li>None </li></ul></ul><ul><ul><li>High </li></ul></ul>Financial Floor Impact Floor <ul><ul><li>Impact </li></ul></ul>High None Negative Optimize social or environmental returns with a financial floor Impact First Investors Optimize financial returns with an impact floor Financial First Investors
    10. 11. Building a Marketplace for Impact Investing Unlock Latent Supply of Capital by Building Efficient Intermediation Build Enabling Infrastructure for the Industry Develop the Absorptive Capacity for Investment Capital Uncoordinated Innovation Marketplace Building Capturing the Value of the Marketplace Maturity
    11. 12. High Net Worth and Ultra High Net Worth Individuals North America 3,300,000 HNWI 41,200 UHNWI Europe 3,100,000 HNWI 25,000 UHNWI High Net Worth Individuals (HNWIs) have assets of at least $1 million (excluding primary residence). Ultra High Net Worth Individuals (UHNWIs) have assets of at least $30 million (excluding primary residence). Asia-Pacific 2,800,000 HNWI 20,400 UHNWI Latin America 400,000 HNWI 10,200 UHNWI Africa 100,000 HNWI 2,100 UHNWI Middle East 400,000 HNWI 4,400 UHNWI Merrill Lynch and Capgemini World Wealth Report 2008
    12. 13. A convergence of actions Create industry defining funds as a beacon for how to address specific social issue(s) Place substantial catalytic, risk-taking capital in mezzanine finance structures Develop impact investing network Set the industry standards for social measurement Lobby for specific policy / regulatory change Coordinated Leadership THAT’S HOW IT COULD TAKE OFF
    13. 14. How Big Could it Be? Impact Investing in 5–10 years? U.S. Philanthropy $0.31 Trillion Impact Investing has the potential to grow to ~1% of total managed assets, which could result in ~$600B of capital channeled towards social and environmental impact All Investing $61.90 Trillion Negatively Screened Funds + Impact Investing $2.71 Trillion
    14. 15. <ul><li>&quot;I wouldn't give a nickel for the simplicity on this side of complexity, but I would give my life for the simplicity on the other side of complexity.&quot; </li></ul><ul><li>— Albert Einstein </li></ul>
    15. 16. Social Capital Markets 2008 <ul><li>The Emerging Marketplace </li></ul><ul><li>Measurement and Metrics </li></ul><ul><li>An Ecosystem of Solutions </li></ul><ul><li>Future of Investment Funds </li></ul><ul><li>The Evolution of Deal-Flow </li></ul><ul><li>The Influence of social media and movements </li></ul>
    16. 17. The Emerging Marketplace <ul><li>“ It’s a huge market but there’s no marketplace” </li></ul><ul><li>All investing= $61.9 Trillion </li></ul><ul><li>Negatively Screened Funds & Impact Investing = $2.71 Trillion </li></ul><ul><li>U.S. Philanthropy - $0.31 Trillion </li></ul><ul><li>Social investing: SRI, community investment </li></ul><ul><li>Microfinance: funds (Blue Orchard), IPO ( Compartamos) </li></ul><ul><li>Fund of funds: Calvert Giving Fund </li></ul><ul><li>Ethical and social stock exchanges: UK, Brazil, South Africa </li></ul><ul><li>Legal structures: L3C, CIC, B Corporation </li></ul><ul><li>Online giving marketplaces: Kiva, Microplace, Globalgiving, Missionfish </li></ul>
    17. 18. Risk, Returns, Impact
    18. 19. Measurement and Metrics <ul><li>What are we measuring, and why? </li></ul><ul><li>Measurement costs money, so who’s going to pay for it? </li></ul><ul><li>Investment-first investors vs. impact-first investors </li></ul><ul><li>Outcome evaluation: learning from foundation experiences </li></ul><ul><li>Acumen Fund: Pulse (formerly PDMS) with Google, Salesforce Fdn </li></ul><ul><li>Socialmarkets.org: Self-reported metrics + SROI + crowdsourcing </li></ul><ul><li>Rockefeller Fdn: Catalogue of Approaches to Impact Measurement </li></ul><ul><li>FSG: New Directions in Foundation Evaluation </li></ul>“ You can’t manage what you can’t measure”… or “ Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.”
    19. 20. Measurement and Metrics
    20. 21. An Ecosystem of Solutions <ul><li>&quot;Let go of ego. You don't have a silver bullet. We need silver buckshot.&quot; ~ Jed Emerson </li></ul><ul><li>Legal structures </li></ul><ul><li>New funds </li></ul><ul><li>Metrics and measurement </li></ul><ul><li>Brokerages and exchanges </li></ul><ul><li>Definitions </li></ul><ul><li>... </li></ul>
    21. 22. We need it all…
    22. 23. Future of Investment Funds <ul><li>Investors – different mandates, most US-based entities </li></ul><ul><li>Social-purpose business investors: </li></ul><ul><ul><li>Market-rate fund with scale - Physic Ventures ($159M) </li></ul></ul><ul><ul><li>Several emerging pilot funds – New Cycle Capital, Good Capital </li></ul></ul><ul><ul><li>Angels – large and small: Investors Circle, E-Line Ventures </li></ul></ul><ul><li>Social enterprise investors/leading philanthropists: </li></ul><ul><ul><li>Foundations and their advisors: Skoll Foundation, Calvert Social Investment Foundation, Imprint Capital Advisors ($100M WK Kellogg Foundation Fund) </li></ul></ul><ul><ul><li>Funds that support non-profits and their advisors: Nonprofit Finance Fund, Growth Philanthropy Network </li></ul></ul>Have certain groups recognized the trend “Consumers and businesses buying and selling goods and services with mission of doing social good” is the “next big thing” investment opportunity and will mainstream investors follow suit?
    23. 24. Fund experience to date… <ul><li>Fundraising is a challenging task </li></ul><ul><li>Pilot funds and successful social investments needed </li></ul><ul><ul><li>Physic’s predecessor was Great Spirit Ventures ($20M) </li></ul></ul><ul><li>“ Meaning” is personal to investors/organizations </li></ul><ul><ul><li>Most success with smaller family foundations and family offices and corporate strategic investors </li></ul></ul><ul><ul><li>CalSters opportunity - meaning intersects strategic interests? </li></ul></ul><ul><li>Range of financial returns targeted – 0-3% versus 25-30% </li></ul><ul><li>Is Philanthropy part of the Social Finance landscape? </li></ul><ul><ul><li>Will program-related investments and market-driven business plans continue to be funded by different investors? </li></ul></ul><ul><ul><li>A few examples presented where capital of these two sets of investors successfully “co-habits” in an organization </li></ul></ul>
    24. 25. Evolution of Deal-Flow <ul><li>There is consensus on the following: </li></ul><ul><ul><li>Widest group of investors will be attracted to deals that deliver significant social impact as well as market-rate financial returns </li></ul></ul><ul><ul><li>Current deal flow, seen by funds is clustered in two areas: </li></ul></ul><ul><ul><ul><li>High financial return, modest to low-level of social impact </li></ul></ul></ul><ul><ul><ul><li>Significant social impact, modest to break-even financials </li></ul></ul></ul><ul><li>The jury is still out on: </li></ul><ul><ul><li>Whether social ventures will be capable of delivering high levels of both financial return and social impact </li></ul></ul><ul><ul><li>What return is right for majority of blended-rate investors? </li></ul></ul><ul><li>A thesis, borrowed from venture capital, emerges: </li></ul><ul><ul><li>If additional capital is made available for blended-return entities, will more deal-flow emerge in the market? </li></ul></ul>
    25. 26. Social/Financial Returns Will the midway point between zero and market-rate emerge as blended-rate level of financial return for this asset class? As capital emerges looking for blended-rate return, will we see deal-flow move to the centre? What level of social impact needed to lower expectations for financial return?
    26. 27. Social Media and Movements <ul><li>The social finance movement </li></ul><ul><ul><li>has been building for decades </li></ul></ul><ul><ul><li>will take decades to realize the full potential </li></ul></ul><ul><li>We are at a critical juncture with accelerating momentum </li></ul><ul><li>Social media is about connection and acceleration </li></ul><ul><ul><li>Giving is the beginning </li></ul></ul><ul><ul><ul><li>Kiva </li></ul></ul></ul><ul><ul><ul><li>MissionFish </li></ul></ul></ul><ul><ul><ul><li>MyC4 </li></ul></ul></ul><ul><ul><ul><li>SocialMarkets </li></ul></ul></ul><ul><ul><li>New tools increasing engagement and involvement </li></ul></ul><ul><ul><ul><li>Wikis, blogs, sites etc. </li></ul></ul></ul><ul><ul><ul><li>Facebook, Twitter, etc. </li></ul></ul></ul>
    27. 29. Implications for Ontario? <ul><li>Causeway is a national initiative focused on social finance with “the asks” directed at the federal level calling for an expert panel to be established </li></ul><ul><li>Causeway is also applying to the OTF for support of their work in Ontario </li></ul><ul><li>MaRS and Causeway recently held a Social Finance Forum, presentations are available online, proceedings are pending </li></ul><ul><li>SiG@MaRS commissioned a Strategic Inquiry on Social Finance at the Provincial level which is available online </li></ul><ul><li>The Ontario government has made several announcements concerning the establishment of a Social Venture Fund – implementation date pending </li></ul><ul><li>Finally, the Ontario Nonprofit Network (ONN) has also established a Working Group on Social Finance – we would like you to join us as we develop a plan for this group </li></ul>
    28. 30. Questions? <ul><li>What interested you about what you heard here today? </li></ul><ul><li>What are the implications for your work? </li></ul><ul><li>Are you interested in working with others on advancing any issue you heard about here today? </li></ul><ul><li>Are you working on a related social finance initiative you would like to highlight? </li></ul><ul><li>If you had to advocate for a particular development in this area, what would it be? </li></ul><ul><li>Are their key players who need to be engaged in this work? </li></ul><ul><li>Are there other key groups we should be linked into? </li></ul>
    29. 31. Open Discussion <ul><li>At SiG@MaRS we want to understand the value of the “Social Venture Fund” target zone but now it’s your turn – what would you like to discuss? </li></ul>
    30. 32. Allyson Hewitt Director, Social Entrepreneurship T 416-673-8410 E ahewitt @marsdd.com W www.marsdd.com

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