Social Capital Markets 2008 Recap – January 19, 2009 Kerri Golden, Karim Harji and Michael Lewkowitz

Agenda Introduction The Future of Social Capital Markets (Keynote review) SoCap Recap The emerging marketplace The role of measurement and metrics An ecosystem of solutions The future of investment funds The evolution of deal-flow The influence of social media and movements Implications for Ontario Questions Open Discussion

Introduction

The Future of Social Capital Markets (Keynote review)

SoCap Recap

The emerging marketplace

The role of measurement and metrics

An ecosystem of solutions

The future of investment funds

The evolution of deal-flow

The influence of social media and movements

Implications for Ontario

Questions

Open Discussion

Introduction Welcome What is SiG@MaRS? Systems Changing Initiatives MaRS Advisory Services Capacity Building Series of best practice events Past - Social Enterprise World Forum Debrief Future - Skoll World Forum Present - Social Capital Markets ReCap Karim - Michael - Kerri

Welcome

What is SiG@MaRS?

Systems Changing Initiatives

MaRS Advisory Services

Capacity Building

Series of best practice events

Past - Social Enterprise World Forum Debrief

Future - Skoll World Forum

Present - Social Capital Markets ReCap

Karim - Michael - Kerri

The Future of Social Capital Markets Katherine Fulton October 2008

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?

Will the promise of this moment be realized? Phases of Industry Evolution Disparate entrepreneurial activities spring up in response to market need or policy incentives Disruptive innovators may pursue new business models in seemingly mature industries Characterized by lack of competition except at top end of market Centers of activity begin to develop Infrastructure is built that reduces transaction costs and supports a higher volume of activity Uncoordinated Innovation Marketplace Building Growth occurs as mainstream players enter a functioning market Entities are able to leverage the fixed costs of their previous investments in infrastructure across higher volumes Organizations may become more specialized Capturing the Value of the Marketplace Maturity Activities reach a relatively steady state and growth rates slow Some consolidation may occur Impact investing today Impact investing in 5-10 years?

Disparate entrepreneurial activities spring up in response to market need or policy incentives

Disruptive innovators may pursue new business models in seemingly mature industries

Characterized by lack of competition except at top end of market

Centers of activity begin to develop

Infrastructure is built that reduces transaction costs and supports a higher volume of activity

Growth occurs as mainstream players enter a functioning market

Entities are able to leverage the fixed costs of their previous investments in infrastructure across higher volumes

Organizations may become more specialized

Activities reach a relatively steady state and growth rates slow

Some consolidation may occur

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 .

Investing for Impact: The Risk is that It Will Be… too HARD to do Insufficient compensation for risk results in lack of interest in impact investing There may not be enough good deals Execution proves to be too difficult The economics ultimately may not clear in most areas Hype creates a bubble, especially from overpromising too EASY to do The current financial markets and incentives create a major pull toward “greenwashing” and dilution of standards. The very premise of having a positive impact is undermined and the industry is discredited

too HARD to do

Insufficient compensation for risk results in lack of interest in impact investing

There may not be enough good deals

Execution proves to be too difficult

The economics ultimately may not clear in most areas

Hype creates a bubble, especially from overpromising

too EASY to do

The current financial markets and incentives create a major pull toward “greenwashing” and dilution of standards.

The very premise of having a positive impact is undermined and the industry is discredited

Segments of Impact Investors Solely Profit-Maximizing Investing Philanthropy “ Yin-Yang” Deals Financial Return None High Financial Floor Impact Floor Impact 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

Financial Return

None

High

Impact

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

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

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

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

"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." — Albert Einstein

"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."

— Albert Einstein

Social Capital Markets 2008 The Emerging Marketplace Measurement and Metrics An Ecosystem of Solutions Future of Investment Funds The Evolution of Deal-Flow The Influence of social media and movements

The Emerging Marketplace

Measurement and Metrics

An Ecosystem of Solutions

Future of Investment Funds

The Evolution of Deal-Flow

The Influence of social media and movements

The Emerging Marketplace “ It’s a huge market but there’s no marketplace” All investing= $61.9 Trillion Negatively Screened Funds & Impact Investing = $2.71 Trillion U.S. Philanthropy - $0.31 Trillion Social investing: SRI, community investment Microfinance: funds (Blue Orchard), IPO ( Compartamos) Fund of funds: Calvert Giving Fund Ethical and social stock exchanges: UK, Brazil, South Africa Legal structures: L3C, CIC, B Corporation Online giving marketplaces: Kiva, Microplace, Globalgiving, Missionfish

“ It’s a huge market but there’s no marketplace”

All investing= $61.9 Trillion

Negatively Screened Funds & Impact Investing = $2.71 Trillion

U.S. Philanthropy - $0.31 Trillion

Social investing: SRI, community investment

Microfinance: funds (Blue Orchard), IPO ( Compartamos)

Fund of funds: Calvert Giving Fund

Ethical and social stock exchanges: UK, Brazil, South Africa

Legal structures: L3C, CIC, B Corporation

Online giving marketplaces: Kiva, Microplace, Globalgiving, Missionfish

Risk, Returns, Impact

Measurement and Metrics What are we measuring, and why? Measurement costs money, so who’s going to pay for it? Investment-first investors vs. impact-first investors Outcome evaluation: learning from foundation experiences Acumen Fund: Pulse (formerly PDMS) with Google, Salesforce Fdn Socialmarkets.org: Self-reported metrics + SROI + crowdsourcing Rockefeller Fdn: Catalogue of Approaches to Impact Measurement FSG: New Directions in Foundation Evaluation “ 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.”

What are we measuring, and why?

Measurement costs money, so who’s going to pay for it?

Investment-first investors vs. impact-first investors

Outcome evaluation: learning from foundation experiences

Acumen Fund: Pulse (formerly PDMS) with Google, Salesforce Fdn

Socialmarkets.org: Self-reported metrics + SROI + crowdsourcing

Rockefeller Fdn: Catalogue of Approaches to Impact Measurement

FSG: New Directions in Foundation Evaluation

Measurement and Metrics

An Ecosystem of Solutions "Let go of ego. You don't have a silver bullet. We need silver buckshot." ~ Jed Emerson Legal structures New funds Metrics and measurement Brokerages and exchanges Definitions ...

"Let go of ego. You don't have a silver bullet. We need silver buckshot." ~ Jed Emerson

Legal structures

New funds

Metrics and measurement

Brokerages and exchanges

Definitions

...

We need it all…

Future of Investment Funds Investors – different mandates, most US-based entities Social-purpose business investors: Market-rate fund with scale - Physic Ventures ($159M) Several emerging pilot funds – New Cycle Capital, Good Capital Angels – large and small: Investors Circle, E-Line Ventures Social enterprise investors/leading philanthropists: Foundations and their advisors: Skoll Foundation, Calvert Social Investment Foundation, Imprint Capital Advisors ($100M WK Kellogg Foundation Fund) Funds that support non-profits and their advisors: Nonprofit Finance Fund, Growth Philanthropy Network 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?

Investors – different mandates, most US-based entities

Social-purpose business investors:

Market-rate fund with scale - Physic Ventures ($159M)

Several emerging pilot funds – New Cycle Capital, Good Capital

Angels – large and small: Investors Circle, E-Line Ventures

Social enterprise investors/leading philanthropists:

Foundations and their advisors: Skoll Foundation, Calvert Social Investment Foundation, Imprint Capital Advisors ($100M WK Kellogg Foundation Fund)

Funds that support non-profits and their advisors: Nonprofit Finance Fund, Growth Philanthropy Network

Fund experience to date… Fundraising is a challenging task Pilot funds and successful social investments needed Physic’s predecessor was Great Spirit Ventures ($20M) “ Meaning” is personal to investors/organizations Most success with smaller family foundations and family offices and corporate strategic investors CalSters opportunity - meaning intersects strategic interests? Range of financial returns targeted – 0-3% versus 25-30% Is Philanthropy part of the Social Finance landscape? Will program-related investments and market-driven business plans continue to be funded by different investors? A few examples presented where capital of these two sets of investors successfully “co-habits” in an organization

Fundraising is a challenging task

Pilot funds and successful social investments needed

Physic’s predecessor was Great Spirit Ventures ($20M)

“ Meaning” is personal to investors/organizations

Most success with smaller family foundations and family offices and corporate strategic investors

CalSters opportunity - meaning intersects strategic interests?

Range of financial returns targeted – 0-3% versus 25-30%

Is Philanthropy part of the Social Finance landscape?

Will program-related investments and market-driven business plans continue to be funded by different investors?

A few examples presented where capital of these two sets of investors successfully “co-habits” in an organization

Evolution of Deal-Flow There is consensus on the following: Widest group of investors will be attracted to deals that deliver significant social impact as well as market-rate financial returns Current deal flow, seen by funds is clustered in two areas: High financial return, modest to low-level of social impact Significant social impact, modest to break-even financials The jury is still out on: Whether social ventures will be capable of delivering high levels of both financial return and social impact What return is right for majority of blended-rate investors? A thesis, borrowed from venture capital, emerges: If additional capital is made available for blended-return entities, will more deal-flow emerge in the market?

There is consensus on the following:

Widest group of investors will be attracted to deals that deliver significant social impact as well as market-rate financial returns

Current deal flow, seen by funds is clustered in two areas:

High financial return, modest to low-level of social impact

Significant social impact, modest to break-even financials

The jury is still out on:

Whether social ventures will be capable of delivering high levels of both financial return and social impact

What return is right for majority of blended-rate investors?

A thesis, borrowed from venture capital, emerges:

If additional capital is made available for blended-return entities, will more deal-flow emerge in the market?

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?

Social Media and Movements The social finance movement has been building for decades will take decades to realize the full potential We are at a critical juncture with accelerating momentum Social media is about connection and acceleration Giving is the beginning Kiva MissionFish MyC4 SocialMarkets New tools increasing engagement and involvement Wikis, blogs, sites etc. Facebook, Twitter, etc.

The social finance movement

has been building for decades

will take decades to realize the full potential

We are at a critical juncture with accelerating momentum

Social media is about connection and acceleration

Giving is the beginning

Kiva

MissionFish

MyC4

SocialMarkets

New tools increasing engagement and involvement

Wikis, blogs, sites etc.

Facebook, Twitter, etc.

Implications for Ontario? 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 Causeway is also applying to the OTF for support of their work in Ontario MaRS and Causeway recently held a Social Finance Forum, presentations are available online, proceedings are pending SiG@MaRS commissioned a Strategic Inquiry on Social Finance at the Provincial level which is available online The Ontario government has made several announcements concerning the establishment of a Social Venture Fund – implementation date pending 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

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

Causeway is also applying to the OTF for support of their work in Ontario

MaRS and Causeway recently held a Social Finance Forum, presentations are available online, proceedings are pending

SiG@MaRS commissioned a Strategic Inquiry on Social Finance at the Provincial level which is available online

The Ontario government has made several announcements concerning the establishment of a Social Venture Fund – implementation date pending

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

Questions? What interested you about what you heard here today? What are the implications for your work? Are you interested in working with others on advancing any issue you heard about here today? Are you working on a related social finance initiative you would like to highlight? If you had to advocate for a particular development in this area, what would it be? Are their key players who need to be engaged in this work? Are there other key groups we should be linked into?

What interested you about what you heard here today?

What are the implications for your work?

Are you interested in working with others on advancing any issue you heard about here today?

Are you working on a related social finance initiative you would like to highlight?

If you had to advocate for a particular development in this area, what would it be?

Are their key players who need to be engaged in this work?

Are there other key groups we should be linked into?

Open Discussion 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?

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?

Allyson Hewitt Director, Social Entrepreneurship T 416-673-8410 E ahewitt @marsdd.com W www.marsdd.com