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Paul Cheng Chief Officers Feb 2011
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Paul Cheng Chief Officers Feb 2011

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  • 1. CAF Venturesome – Impact Investing Paul Cheng Senior Investment Manager, CAF Venturesome The text in this document may be reproduced free of charge providing that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Venturesome copyright and the title of the document specified.
  • 2. Leading UK impact investor
  • 3. Emerging industry – but still fragile
  • 4. Finance-first vs Impact-first
  • 5. The social investment market: risk / return Low Financial Risk Philanthropy Impact Investment Property / working capital Development capital Commercial returns VS Bridging Fund VS Development Fund Classical grant making (-100%) Reduced financial return compensated by social impact High Financial Risk Loss of capital compensated by social impact Giving Multiplier
  • 6. The investor universe + 8%
  • 7. The investor universe + 8% Market-rate return
  • 8. The investor universe + 8% 0% Market-rate return
  • 9. The investor universe + 8% 0% Market-rate return Capital-protected
  • 10. The investor universe - 100% + 8% 0% Capital-protected Market-rate return
  • 11. The investor universe - 100% + 8% 0% Capital-protected Market-rate return Grant-makers
  • 12. The investor universe - 100% + 8% 0% Capital-protected Market-rate return Grant-makers - 15%
  • 13. The investor universe - 100% + 8% 0% Capital-protected Market-rate return Grant-makers - 15% ?
  • 14. Income/revenue is distinct from capital
    • Income / revenue
      • covers the costs of expenditure of ongoing work (service provision, projects etc)
      • suppliers of income = PURCHASERS of your work
    • Capital
      • money and other resources that enable you to deliver your service / project / work
      • capital funders = INVESTORS in your organisation
  • 15. Philanthropic equity vs Revenue funding
  • 16. Charities need a capital base
    • Capital base is required for:
      • Working capital
      • Financial resilience
      • Growth or development
    • Few charities are able to create a surplus that can be set aside as reserves
    • Emerging supply of capital for charities and social enterprise
  • 17. Mad money – the irrational world of development finance
    • Surpluses are bad
    • Cash is restricted
    • Price does not have to cover costs
    • Marginal costs of growth can be ignored
    • Overhead is a luxury and a distraction
  • 18. Venturesome provides capital funding
    • Since 2002, we have offered £20m to over 270 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
    • Nearly nine out of ten organisations have achieved or outperformed initial capacity building aims
  • 19. Helping individual charities – what we offer
    • Working capital to cover cash flow fluctuations
    • Development capital – ‘hard’ and ‘soft’
    • Pre-funding of fundraising – bridging loan
    • Underwriting – standby facilities
  • 20. Life cycle of an organisation
  • 21. Matching financial mechanisms to funding needs
  • 22. Matching financial mechanisms to funding needs Secured loan Standby Facility Overdraft Unsecured Loan Patient Capital Quasi-equity Equity Grant HIGH CHANCE OF REPAYMENT LOW CHANCE OF REPAYMENT
  • 23. Matching financial mechanisms to funding needs Secured loan Standby Facility Overdraft Unsecured Loan Patient Capital Quasi-equity Equity Grant HIGH CHANCE OF REPAYMENT LOW CHANCE OF REPAYMENT LOW RISK HIGH RISK Property/Asset purchase (mortgage) Cashflow bridging Pre-funding Capital Fundraising Higher risk working capital Development Capital
  • 24. Matching financial mechanisms to funding needs Secured loan Standby Facility Overdraft Unsecured Loan Patient Capital Quasi-equity Equity Grant HIGH CHANCE OF REPAYMENT LOW CHANCE OF REPAYMENT LOW RISK HIGH RISK Property/Asset purchase (mortgage) Cashflow bridging Pre-funding Capital Fundraising Higher risk working capital) Development Capital
  • 25. 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
  • 26. Charity or business?
  • 27. Helps manage timing of income/expenditure
    • Working capital
    • Beat
      • On average income matched expenditure, but income typically ‘lumpy’ while expenditure remained fixed
      • Venturesome underwrote reserves using a standby facility to help manage uncertainty
      • St Peters Church
      • Undertaking major refurbishment work requiring £1.6m fundraising campaign
      • Helped structure fundraising approach to enable the church to proceed with its plans, providing £200,000 to pay builders ahead of future fundraising income
  • 28. Helps manage rainy days
    • Financial resilience
    • Bedford Creative Arts
      • Local educational charity had to move offices at short notice, at the same time as experiencing uncertainty around key funding streams
      • Venturesome provided a £20,000 financial safety net for a year to help the charity through uncertain times
      • Global Links Initiative
      • Small charity managing international network connecting social entrepreneurs
      • Venturesome provided a financial bridge to legacy income, protecting the work while future plans were reviewed
  • 29. Enables investment in your organisation
    • Growth or development
      • Book Aid International
      • The charity wished to invest in a door-to-door fundraising campaign to diversify income streams, but couldn’t risk all its reserves in doing so
      • Venturesome underwrote reserves enabling the charity to invest successfully
    • Charity Technology Trust (CTT)
      • Transitioning from grant-dependency to a more diversified income, including trading
      • Provided £50,000 of equity-like investment, with Venturesome and CTT sharing the risk associated with the new trading arm
  • 30. Contact details: Paul Cheng [email_address] 03000 123 256 www.venturesome.org Twitter: @cafventuresome

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