Funding Your Social Enterprise: Approaches & Resources for Nonprofits

Funding Your Social Enterprise: Approaches & Resources for Nonprofits A Seriously Good Webinar July 8, 2010 Zerodivide.org - @ZeroDivideOrg - facebook.com/ZeroDivideorg

Straw Poll – Who’s on the call? Are you a… • Social enterprise/social entrepreneur • NPO thinking about a new enterprise • Social enterprise consultant • Funder/Investor • Other 2

Straw Poll #2 – What do you most want to hear about? • Community bank loans (CDFI) • Program Related Investments (PRI) • Mission Related Investments (MRI) 3

FUNDING SPECTRUM OF SOCIAL ENTERPRISES Traditional Social enterprises For-profit nonprofit Capital Grants and Grants and below- Market-rate donations market capital, capital no/low-interest loans Expected High High None social return Expected None Below market or Market rate financial none return Sources of Foundations, Foundations, local Traditional capital government grant government, venture programs, CDFIs, PRIs, capitalists, bilateral and bilateral and investment multilateral multilateral lenders, banks, other lenders, nonprofit social investment individuals investors, assets, individual individuals investors, stock Source: Virtue Ventures LLC. 4

Spectrum of Investors Community Angel Traditional Socially Community development investors / institutional Traditional Venture responsible debt equity / social capital philanthropy philanthropy investment financing venture venture (e.g., banks, funds capital capital mutual funds) Social equity investors Private equity investors Source: Jed Emerson, based on the work of Shari Berenbach and Timothy Freundlich, 2000. 5

ALTERNATIVE FINANCING • Community Development Financial Institutions (CDFI) – A CDFI is a specialized financial institution that works in market niches that are typically outside the areas served by traditional financial institutions. – CDFIs are regulated under the U.S. Treasury through the CDFI Fund. – Services include providing financial services, loans, and investments; offering training and technical assistance services; and promoting development efforts that enable individuals and communities to effectively use credit and capital. For more information on CDFIs or to find a CDFI in your region, please visit the Coalition of Community Development Financial Institutions at CDFI.Org 6

TYPES OF LOANS  Facility Loans  Acquisition Loan Sizes  Construction, renovation and leasehold improvement  NFF’S loans typically range from  Related soft costs, such as professional fees and permits $100,000 to $2 million  Relocation costs  Other CDFI’s offer both smaller loans as well as larger loans up  Working Capital Loans to $5 million  Bridging capital campaign receipts, grants, government contracts, and other receivables Rates  Lines of credit to support temporary cash flow needs  Vary with type of loan and can  Program expansion be fixed or variable.  Equipment Loans  Office equipment and furniture Terms  Computer hardware and software  Can range from short term for  HVAC and security systems bridge financing up to 5-7 years  Other program-and facility-related equipment for facility projects.  Growth Loans  Expand programs  Grow an earned income or social venture •New Market Tax Credits 7

PROGRAM RELATED INVESTMENTS (PRIs) • Program-related investments (PRIs) are investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organizations or in commercial ventures for charitable purposes. • Make Foundation funds available for charitable purposes (like grants) • BUT • Generally come back to the Foundation, with some interest – generally below market rates (unlike grants) • AND • Can never be made for the primary purpose of financial gain (unlike regular Foundation investments) 8

FOR EXAMPLE? •Construction loans …for charter schools, health clinics, affordable housing, child care centers, and other projects serving charitable purposes •Business loans and investments …to start and expand companies that employ lower-skilled workers and strengthen underserved or distressed communities •Short-term financing and working capital loans …to buy land for conservation before permanent funds are raised; to cover operating costs for a social service agency awaiting government payments •Credit enhancement …to make mortgages to low-wealth homebuyers; to facilitate investment in community and sustainable development projects and organizations 9

CALIFORNIA COMMUNITY FOUNDATION PRI to Children’s Museum of Los Angeles •Purpose  Bridge loan for pre-construction of a major cultural facility •Terms  Period – 6 months  Amount - $300,000; cumulatively - $1.025 million  Interest Rate – 3%  Results – Helped Children’s Museum of LA to secure $22.6 million of $50 million capital campaign 10

WHERE DO PRIs FIT IN? Regular Social Program-related Grants Investments Investments Investments Primary purpose Financial gain Financial and Charitable Charitable social gain benefit benefit Investment Maximum risk- Usually at or Modest Zero financial profile adjusted near market financial return financial return return; almost return always below market Constraints “Jeopardizing investments” are “Charitable purposes” must subject to penalties satisfy IRS requirements For more information on which foundations make PRI’s, please visit www.primakers.org 11

MISSION-RELATED INVESTMENT (MRI) •The investment of a foundation's endowment assets in opportunities that align with its program goals. Some foundations have common under criticism for endowment investments in companies who are seen to cause the very problems their programs seek to remedy. •Financial investment made with the intention of: (1) Furthering a foundation’s strategic goals (2) Obtaining a financial return (at or near market rate) 12

MISSION-RELATED INVESTMENTS • Loans •Alternative assets • Senior • Direct private equity • Subordinated • Private equity funds • Loan funds • VC funds • Line of credit • Fund of funds • Buyout funds •Fixed income • Hedge funds • Bonds • Real estate • Bond funds • Asset-backed securities •Public equity • Screened funds • Direct public equity 13

WHERE DO MRIs FIT IN? Regular Social Program-related Grants Investments Investments Investments Primary purpose Financial gain Financial and Charitable Charitable social gain benefit benefit Investment Maximum risk- Usually at or Modest Zero financial profile adjusted near market financial return financial return return; almost return always below market Constraints “Jeopardizing investments” are “Charitable purposes” must subject to penalties satisfy IRS requirements 14

Straw Poll #3 – What do you most want to hear about? • Foundation vs. non foundation funding • Specific Fdn. funders • What funders look for 15

Straw Poll #4 – What do you most want to hear about? • Nonprofit IPO • Capital campaign • Other 19

Founded: 1974 Mission: Opening doors to safety, dignity, hope and independence. Vision: Everybody deserves a place to call home Demographics: 14 housing and shelter programs in Marin County provide 441 beds to homeless children, women, and men, every single night. Social Enterprises: Catering Business, Public Cooking School, Chocolate Truffles and other deli items, Event Space, Commercial Kitchen Rental Annual Budget: $4.5 million The cost of providing food, shelter, and support services is $28 for each person served, each night. 20

Homeward Bound of Marin’s “Fresh Starts Catering” social enterprise offers work experience and employment to students in its culinary job training programs while catering a wide variety of events. 21

The Key Room, a conference and dining space operated by Homeward Bound, allows businesses and community members to hold business workshops, team-building events, weddings, and elegant dinners in this beautiful state-of-the-art location. Was funded by a successful capital campaign – an alternative way to raise funds for social enterprise. Attracted many new foundation funders from out-of-county. 22

An on-site public cooking school offers classes and lectures by culinary luminaries like Chefs Michael Mina, Heidi Krahling, Joanne Weir and Rajat Parr. 23

Halo Truffles provide another unique avenue to support our work. Look for them in high-end markets and take a bite out of homelessness! 24

In May 2007, Homeward Bound launched the first ever nonprofit IPO. Warren Buffett was our inaugural shareholder. 25

Over 1,000 shareholders, have purchased 31,940 shares, generating $1,022,080 …so far. 26

Additional Innovative Approaches • Enter business plan or other competition • Partner with other SEs in similar space • Pre-service purchase or discount • Crowdsource • Attach business plan to grant proposal • Explore Hybrid models (L3C) or Co-op 27

How to Fund Youth Media Marketers? • 3 year old nonprofit social media consultancy • Foundation funding soon to end • 60% sustainable • Business demand increasing • Wanting to expand business and create satellite ventures • Have franchise opportunities 28

Contact info • David Greco, Nonprofit Finance Fund (nonprofitfinancefund.org) Phone: 415-255-4849 Email: sf@nffusa.org • Laura Efurd, ZeroDivide (zerodivide.org) Phone: Phone: 415-773-0388 Email: laura@zerodivide.org • Paul Fordham, Homeward Bound (hbofm.org) Phone: 415-382-3363 ext.211 Email: pfordham@hbofm.org • Paul Lamb, Man on a Mission Consulting (manonamission.biz) Phone: 510-815-6091 Email: paul@manonamission.biz 29

Funding Your Social Enterprise: Approaches & Resources for Nonprofits

by Margaret Stangl on Jul 08, 2010

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Funding Your Social Enterprise: Approaches & Resources for Nonprofits — Presentation Transcript