Financing your charity: how can social investment work for you?


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The presentation was a workshop at Evolve 2014: the annual event for the voluntary sector in London on Monday 16 June 2014.

The presentation was chaired by Caron Bradshaw, Chief Executive, Charity Finance Group and looks at the practical issues around social investment, showcasing some of the products available, hearing from charities that have successfully used social investment and social investment providers.

Find out more about the Evolve Conference from NCVO:

Find out more about the work NCVO does around funding:

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Financing your charity: how can social investment work for you?

  1. 1. Workshops PM6: Financing your charity: how can social investment work for you? Chair: Caron Bradshaw, Chief Executive, Charity Finance Group Speakers: Geetha Rabindrakumar, Social Sector Leader, Big Society Capital Mike Niedzwiecki, Investment Readiness Manager, Social Investment Business Julian Price, Managing Director, Revive CIC Carolyn Sims, Head of Banking, Charity Bank
  2. 2. NCVO - Evolve 2014 Financing your charity: how can social investment work for you? Geetha Rabindrakumar @BigSocietyCap
  3. 3. What is social investment? • Financial returnInvestment • Financial return & • Social return Social investment • Social returnPhilanthropy
  4. 4. Why social investment? For your charity, investment can: • Be more flexible than grants • Enable charity to direct donation income to where most needed • Bring business discipline (effectiveness) • Bring wider support and engagement with your cause • Bring involvement/expertise from motivated investors For the sector: • Recycle money available • Attract additional funding
  5. 5. Early considerations • What do you need investment for? o Purchasing/refurbishing assets o Working capital (e.g. to support payments by results contract) o Bridging finance (e.g. confirmed grant) o Expand existing work/ deliver new services • Is there an income stream? • What social impact are you seeking to create? Organisation Activities Outputs Outcomes Impact
  6. 6. BSC role as investment wholesaler & market champion
  7. 7. Social Investment Finance Intermediaries Social Funds Social Lenders Investment Readiness Advisers Social Impact Bonds General funds Specialised funds
  8. 8. For reference • Submit online queries to BSC investment team • Grant support to prepare for investment: Big Potential ICRF - • Sources of funding currently open: • Directory of social finance providers and advisers (can filter for specific requirements): • NCVO guide and tool • Big Lottery Guide to social investment (summer 2014) • CFG event on social investment – 27 November 2014
  9. 9. For info/discussion in Q&A
  10. 10. Stage of development OCS Social Incubator Fund(£10m) Big Venture Challenge (>£5m) CO ICRF (£10m) Stage of business growth Commissi oning/rev enue support Secured Loans Unsecure d Loans Equity Grant Restricted Grant Social Investment Funds (~£20m) Start up Early Growth Established Typeofcapital BIG Potential (£10m) CO Outcomes Fund (£10m) BLF Outcomes Fund (£40m) Fully or partly funded by government Fully or partly funded by Big Lottery Fund Partly capitalised by Big Society Capital Other Grant programmes from Charitable Trusts and Foundations (>£2bn) Social Banks (~£180m) Tech for Good (£500K)
  11. 11. Social Impact Bonds Financial risk transfer to investors SIB SPV Investment into SIB programme Payments represent a % of cost savings Investors Commissioner (e.g. LA) Delivery programme (could include peer support, group activity, CBT for most isolated) Lead delivery charity Payment metric: Reduction in loneliness Eg: Social Finance - Investment in services to reduce loneliness – benefits of reduced service use and improved health outcomes • Pressing social need • Engaged commissioner • Complex social outcome to evidenceReduced loneliness
  12. 12. Becoming investment ready Mike Niedzwiecki Investment Readiness Manager
  13. 13. • Access to investment capital is the greatest single barrier to social ventures’ start-up and growth. • Government wants more social ventures creating more social impact. • Government has sought to grow the social investment market, from setting up BSC (supply), to opening up public sector markets (demand). • Many social ventures are not however in a position to: • Raise or take on external repayable investment. • Bid for or manage public sector contracts. • Need to become ‘investment ready’ Investment Readiness – context and need
  14. 14. • Some organisations might need additional support before taking on social investment for the first time – this is called investment readiness support • This tends to focus on key areas: -- people (skills + experience) -- what you do + who your customers are (market) -- how you do things + how well (impact / track record) -- finances (state / management) • SIB manages two programmes – Big Potential and the Investment and Contract Readiness Fund Becoming investment ready: what does this mean?
  15. 15. • About BIG Potential • Who is eligible? • Diagnostic Tool • Book a business advisor session • Choose a support provider • Apply for a grant Introducing Big Potential
  16. 16. • New £10m grant fund from Big Lottery Fund managed by the Social Investment Business • Helping organisations become more sustainable, build capacity as well as consider repayable investment for the first time • For VCSEs in England aspiring to raise up to £500,000 new investment Introducing Big Potential
  17. 17. • Chance to skill up • Space to consider the added value of social investment • Fully supported diagnostic service – including a helpful online tool and an in-depth 1:1 session with an expert advisor • Grants of between £20,000 and £75,000 for specialist business support to help raise new investment • Brand new website with lots of helpful resources and information about social investment What will Big Potential offer?
  18. 18. • Not just skilling up – opportunity to actually raise new investment • Fully supported application process – diagnostic service that supports organisations looking at social investment for the first time • Access to high quality specialist support – from the fund’s approved providers that have a proven track record to helping similar organisations successfully raise new investment What is unique about Big Potential?
  19. 19. How to apply
  20. 20. 1. Operating and working in England. 2. A VCSE organisation 3. Track record of products/services that bring about charitable outcomes or health, environmental or education benefits. 4. Have ambition and potential to raise up to £500,000 (repayable) investment. 5. Have potential to develop activities to generate financial and social returns for investors. 6. Be financially healthy and be able to meet their core costs during the lifetime of the grant. 7. Not for religious or political purposes. 8. May need to make a contribution to the costs of their project ACTION: Visit to start 1. Check your Eligibility
  21. 21. • This detailed diagnostic tool helps VCSEs start thinking about how investment ready they might be. • It asks some key questions about five key areas of your organisation, including its financial position, its people, governance, customers, impact and quality of processes • Get a quick investment readiness report at the end that identifies which areas might need improvement before applying for investment ACTION: Complete diagnostic tool assessment by visiting 2. Assess: Your Diagnostic Tool
  22. 22. • VCSEs will meet a support advisor to go deeper into the diagnostic tool assessment. • Better understand what it means to be investment ready and what you need to do to achieve it. • Receive a detailed investment readiness report after the 1:1 session, which will describe the business development support needed and some suggestions and full guidance on choosing an appropriate provider. • Session can be done face-to-face or over Skype. ACTION: Book and attend an intensive two-hour session with support advisor. 3. Attend: Your 1:1 session
  23. 23. • Can apply for a preliminary or investment plan grant. • Choose an approved provider to undertake investment readiness project and then the VCSE makes an application to the fund. • The investment readiness project can start with a smaller development project, followed by a more in-depth Investment Plan project. On some occasions VCSEs may apply directly for an investment plan grant when they and their provider agree that an investment deal is in sight. ACTION: Choose your approved provider to prepare the application together but the VCSE must complete and submit the application form. 4. Apply: Find a provider
  24. 24. • Successful VCSE organisations will be offered a grant to help start their investment readiness project. • You will receive grant offer documents from us. Once these are completed and returned to us you will receive your first grant payment. • Provide on-going monitoring information. Also participate in evaluation of Big Potential and contribute to case studies. ACTION: Accept the grant offer and return required documents to complete grant contract. 5. Outcome: What next?
  25. 25. • Online: • Phone: 0207 842 7788 • Email: • Twitter: @TheSocialInvest Get your copy of the Big Potential programme guidance now! Start your Big Potential journey
  26. 26. • £10m from the Cabinet Office. • April 2012 – March 2015 (3 year Fund). • £50,000 to £150,000 grants • Applications open till at least September 2014. • Social ventures have to work in partnership with an approved investment / contract readiness provider. Investment and Contract Readiness Fund (ICRF)
  27. 27. • Social ventures seeking to raise investment of at least £500,000 or win contracts of at least £1million. • Social ventures : • Tackle social problems. • Financially sustainable. • Aim to scale what works. • Charities, social enterprises, community and voluntary orgs, social businesses, mutuals. • Grants of £50,000 - £150,000 to purchase specialised support and to cover some of the costs of putting the ICR plan into action. • England only. Criteria: who can apply
  28. 28. Discuss proposal Approved provider Application Process Social ventures looking to grow and business advice providers with a track record in investment or contract readiness work can apply. Apply Find a provider Apply for approval Experience in providing investment/contract readiness services? Looking to raise £500K investment or win £1m contract?
  29. 29. General fund statistics Approved 94 grants averaging £100,000 each and spent £8.9 million. • 42 investment readiness grants worth £4 million • 51 contract readiness grants worth £4.8 million • 1 for investment and contract readiness • Some 74 ventures are still actively carrying out their business support programmes. High level statistics (to date) Top sectors (value of grants) 1. Education / training 2. Health and social care 3. Children and young people 4. Crime and offending 5. Disability 6. Older people 7. Counselling / advocacy 8. Environmental 9. Arts / cultural 6% 4% 13% 27% 4% 9% 11% 6% 11% 9% East Midlands Eastern England wide London North East North West South East South West
  30. 30. Reasons for applying to ICRF 0 20 40 60 # of respondents 910 45 25 54 11 19 39 22% 64% 53% 12% 11% 29% 13% 46% 18 10 22 33 37 61 64 44 27 40 28 28 24 20 20 44 50 50 39 39 18 16 11 55 100 0 20 80 40 60 % of respondents Neither agree nor disagree Disagree Agree What were your primary goals when applying to the Investment and Contract Readiness Fund (ICRF)? 'Prior to our ICRF application, our organisation had the skills and knowledge to effectively...' 64% of survey respondents were looking to raise investment Ventures were less confident on technical issues (law, governance etc.) Note: Left hand chart, n = 85, right hand chart n varies from 54 to 9 Source: BCG ICRF Feedback Survey
  31. 31. Half of ventures 'Strongly agree' that they would have been unable to carry out the work without the ICRF 73% 88% 61% 72% 18% 10% 29% 15% 9% 10% 13% 100 80 60 40 20 0 'Our provider's work is of consistently high quality.' 2% 'The work of our provider has met or exceeded the level of support proposed in our application.' % of respondents 'Our organisation would have been unable to pursue the work carried out in the business support phase without funding from the ICRF.' 'Our provider's work represents good value for money.' Note: n = 82 Source: BCG ICRF Feedback Survey Disagree Neither agree nor disagree Agree
  32. 32. Ventures are already benefitting from support, with some looking for more support in the future 7% 100 80 60 40 20 0 % of respondents Other positive outcome Yes, directly helped us win contracts Yes, directly helped us raise investment No outcome yet, expected to directly improvement investment readiness No outcome, none expected as a direct result 20% 16% 56% 2% 7% 7% 100 80 60 40 20 0 % of respondents Funded the work ourselves or re-applied with increased self-funding Sought other sources of funding and not proceed without external funding Attempted to reapply with a different provider Attempted to reapply with the same provider Not pursued this work 13% 24% 48% What is the quantifiable outcome of the business support provided to date? In practice, the length of our business support phase is: If our application had been unsuccessful, we would have most likely: 40% have already had clear impact 28% would prefer support for longer 80% would have reapplied or found other funding Note: Left hand chart n = 53, middle chart, n = 61, right hand chart n = 54 Source: BCG ICRF Feedback Survey 100 40 80 0 20 60 58% Unable to comment on length at this time Longer than necessary for our objectives 2% Appropriate for our objectives Too short to meet our objectives % of respondents 28% 11%
  33. 33. ICRF engagement has left a positive impact on ventures, which are less likely to need further support 70 22 7 60 80 20 40 100 0 Agree Neither agree nor disagree Disagree % of respondents 59 20 21 100 80 60 0 20 40 % of respondents Agree Neither agree nor disagree Disagree 'Our experience with the ICRF has given us the knowledge and skills to require less external support in the future.' 'Our experience with the ICRF will have a positive, long-term impact on our organisation.' 70% of ventures are more self-reliant 60% have had a lasting impact Note: Left hand chart n = 54, right hand chart n = 81 Source: BCG ICRF Feedback Survey
  34. 34. • Grant £95,836 • Covered: market analysis for new services, business/growth plan • Investment raised: £1.3 million (£1.1m 25 year loan and £200,000 asset finance deal) • Towards: - construction of new facilities - buying and refurbishing accommodation - equipment for refurbished community building. Investment readiness case study: Foresight (North East Lincolnshire)
  35. 35. NCVO – Evolve Conference 2014 Financing your charity – how can social investment work for you?
  36. 36. Charity Bank “I do not have very much money to invest or to give and Charity Bank enables me to contribute to good projects despite this difficulty.” Quote from a Charity Bank depositor
  37. 37. Loan Finance – the benefits • Enables a project to be delivered NOW • Can avoid potential increase in costs • Unable to obtain grant funding • Lending against pledges/retrospective grants • Independence
  38. 38. The providers: • Social lenders • CDFIs • Community Foundations • High Street banks • Specialist lenders A different bank for people who want a different world
  39. 39. What information to provide: • Details and skills set of trustees • Background information • Three years annual accounts (if available) • Management accounts • Budget / forecast profit & loss account • Details of loan requirement 40
  40. 40. What do we look for: • Evidence of social impact • Ability to repay • Well thought out plan • Robust financial projections • Buy in of both management team and trustees • Market testing / competitor analysis • Third party support of project 41
  41. 41. Matters of concern (1) • Number of trustees • Appropriate skill set of trustees • Quality of management • Over reliance on key individuals • Loss of public sector funding 42
  42. 42. Matters of concern (2) •Diversified income streams - community cafes are not necessarily the answer •Proper transfer of risk in contracts •Stress testing business plans •Pension liabilities •Optimism over realism
  43. 43. Loan Finance – the small print • Loan term • Secured or Unsecured • Secured on property or other assets • Loan to value • Borrowing rate • Fees • Covenants
  44. 44. Points to be aware of: • Trustee guarantees • Pre-drawdown conditions • On-going financial covenants • On-going information requirements • Breakage costs • Events of default • Cross default clauses
  45. 45. Carolyn Sims – Head of Banking
  46. 46. Community Interest Company • Not For Profit (4.1 the company is not established for private gain: any profits or assets are used principally for the benefit of the community) • Environmental • Assist Young People & the Long Term Unemployed in to Employment
  47. 47. Loan Finance Experience
  48. 48. Before the loan • Charity Bank • Lender needs to know your business • Critical friend • Loan application focuses business idea • Business Plan • Why will your business idea work • Prove your idea will work • Relevant skills and experience of people involved
  49. 49. After the loan • Continue to develop the relationship with your lender • The real work starts • Stick to your plan • There will be challenges • Learn from the experience • You might need further finance
  50. 50. Evolve 2014