So Cap2008 Presentation Final

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
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?

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

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

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

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
“ 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

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.”

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
...

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?

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

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?

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.

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

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?

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?

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

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So Cap2008 Presentation Final

by Karim Harji on Jan 27, 2009

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So Cap2008 Presentation Final — Presentation Transcript