Paul Cheng Chief Officers Feb 2011

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Paul Cheng Chief Officers Feb 2011

  1. 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. 2. Leading UK impact investor
  3. 3. Emerging industry – but still fragile
  4. 4. Finance-first vs Impact-first
  5. 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. 6. The investor universe + 8%
  7. 7. The investor universe + 8% Market-rate return
  8. 8. The investor universe + 8% 0% Market-rate return
  9. 9. The investor universe + 8% 0% Market-rate return Capital-protected
  10. 10. The investor universe - 100% + 8% 0% Capital-protected Market-rate return
  11. 11. The investor universe - 100% + 8% 0% Capital-protected Market-rate return Grant-makers
  12. 12. The investor universe - 100% + 8% 0% Capital-protected Market-rate return Grant-makers - 15%
  13. 13. The investor universe - 100% + 8% 0% Capital-protected Market-rate return Grant-makers - 15% ?
  14. 14. Income/revenue is distinct from capital <ul><li>Income / revenue </li></ul><ul><ul><li>covers the costs of expenditure of ongoing work (service provision, projects etc) </li></ul></ul><ul><ul><li>suppliers of income = PURCHASERS of your work </li></ul></ul><ul><li>Capital </li></ul><ul><ul><li>money and other resources that enable you to deliver your service / project / work </li></ul></ul><ul><ul><li>capital funders = INVESTORS in your organisation </li></ul></ul>
  15. 15. Philanthropic equity vs Revenue funding
  16. 16. Charities need a capital base <ul><li>Capital base is required for: </li></ul><ul><ul><li>Working capital </li></ul></ul><ul><ul><li>Financial resilience </li></ul></ul><ul><ul><li>Growth or development </li></ul></ul><ul><li>Few charities are able to create a surplus that can be set aside as reserves </li></ul><ul><li>Emerging supply of capital for charities and social enterprise </li></ul>
  17. 17. Mad money – the irrational world of development finance <ul><li>Surpluses are bad </li></ul><ul><li>Cash is restricted </li></ul><ul><li>Price does not have to cover costs </li></ul><ul><li>Marginal costs of growth can be ignored </li></ul><ul><li>Overhead is a luxury and a distraction </li></ul>
  18. 18. Venturesome provides capital funding <ul><li>Since 2002, we have offered £20m to over 270 small- and medium-sized charities </li></ul><ul><li>Provide capital investment in the form of unsecured loans, underwriting and equity-like investments </li></ul><ul><li>To date, 96% of funds have been recycled, to be reinvested </li></ul><ul><li>Nearly nine out of ten organisations have achieved or outperformed initial capacity building aims </li></ul>
  19. 19. Helping individual charities – what we offer <ul><li>Working capital to cover cash flow fluctuations </li></ul><ul><li>Development capital – ‘hard’ and ‘soft’ </li></ul><ul><li>Pre-funding of fundraising – bridging loan </li></ul><ul><li>Underwriting – standby facilities </li></ul>
  20. 20. Life cycle of an organisation
  21. 21. Matching financial mechanisms to funding needs
  22. 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. 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. 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. 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. 26. Charity or business?
  27. 27. Helps manage timing of income/expenditure <ul><li>Working capital </li></ul><ul><li>Beat </li></ul><ul><ul><li>On average income matched expenditure, but income typically ‘lumpy’ while expenditure remained fixed </li></ul></ul><ul><ul><li>Venturesome underwrote reserves using a standby facility to help manage uncertainty </li></ul></ul><ul><ul><li>St Peters Church </li></ul></ul><ul><ul><li>Undertaking major refurbishment work requiring £1.6m fundraising campaign </li></ul></ul><ul><ul><li>Helped structure fundraising approach to enable the church to proceed with its plans, providing £200,000 to pay builders ahead of future fundraising income </li></ul></ul>
  28. 28. Helps manage rainy days <ul><li>Financial resilience </li></ul><ul><li>Bedford Creative Arts </li></ul><ul><ul><li>Local educational charity had to move offices at short notice, at the same time as experiencing uncertainty around key funding streams </li></ul></ul><ul><ul><li>Venturesome provided a £20,000 financial safety net for a year to help the charity through uncertain times </li></ul></ul><ul><ul><li>Global Links Initiative </li></ul></ul><ul><ul><li>Small charity managing international network connecting social entrepreneurs </li></ul></ul><ul><ul><li>Venturesome provided a financial bridge to legacy income, protecting the work while future plans were reviewed </li></ul></ul>
  29. 29. Enables investment in your organisation <ul><li>Growth or development </li></ul><ul><ul><li>Book Aid International </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Venturesome underwrote reserves enabling the charity to invest successfully </li></ul></ul><ul><li>Charity Technology Trust (CTT) </li></ul><ul><ul><li>Transitioning from grant-dependency to a more diversified income, including trading </li></ul></ul><ul><ul><li>Provided £50,000 of equity-like investment, with Venturesome and CTT sharing the risk associated with the new trading arm </li></ul></ul>
  30. 30. Contact details: Paul Cheng [email_address] 03000 123 256 www.venturesome.org Twitter: @cafventuresome

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