Exploring Social Finance & Social Enterprise


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Presentation made at Social Enterprise Speaker Event organized by Community Living Hamilton in June 2012.

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  • Cutsof between 5-10 per cent for all government departments as a part of the spending review.
  • Show that funding from government and donors is decreasing over time; demand for services is increasing (stats?; CD Howe has data to 2008
  • Transition to “shared value”; leadershipHe is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally. He chairs Harvard Business School's program dedicated for newly appointed CEOs of very large corporations.Founder of the Monitor Institute
  • Regent Park Development Initiative: six phases of development over 15 years for mixed housing, including 2,083 Rent Geared to Income (RGI) units, 700 affordable rental units, 3,500 market rental units, and 250,000 sq ft. of commercial spaceTotal cost: $1 billion [TCHC and the City of Toronto: $450 mil., Priv. interests and commercial service providers: $500 mil., Fed. and prov. govts: $60 mil.]Motivation: flat, fixed revenues; aging buildings with significant capital repair needs; poorly planned community in need of revitalizationNontraditional financing provided flexibility and scaleRBC (no bank in community for 62 years), Sobeys FreshCo, mixed residential/commercial usage
  • In 2010, Tia-o-qui-aht First Nation (TFN) in B.C. began the Canoe-Creek Hydro project, built to exacting environmental standards to reflect their stewardship of the land. Vancouver City Savings Credit Union (Vancity) provided the loan of $5M for the plant, which is projected to generate annual revenue of $1.6M and power 1,700 homes in the area.
  • MandiLunan has a do it yourself attitude. It’s part of what attracts her to baking and what led her to create AuntiLoo’s Treats, which specializes in vegan creations. Mandi takes it as a compliment that many of her clients do not share her vegan beliefs. Her rule is delicious first, vegan second. For those who do share her beliefs, or who happen to be allergic to dairy, she takes pride in being able to offer them a tasty alternative.After years of baking on the side, it became clear that Mandi needed to expand her business. She knew that it was time to get her own shop, but was reluctant to approach the major banks. What Mandi likes about OCLF is the people, “They’re enthusiastic and it was clear that they love what they do. This inspired me to feel good and positive about my own idea.” OCLF worked with Mandi to develop her business plan, before providing her with the financial support she needed to take her business to the next level. OCLF is proud of her success and the role that we were able to play in helping her to achieve her vision.
  • Each stakeholder needs to be introduced in sequential order to explain the model. Service providerIntermediary Government Investor
  • Exploring Social Finance & Social Enterprise

    1. 1. EXPLORING SOCIAL FINANCE& SOCIAL ENTERPRISE Social Enterprise Speaker Event Community Living Hamilton I Liuna Station, Hamilton June 13th, 2012
    2. 2. OBJECTIVES
    3. 3. OBJECTIVES1. Provide background on our work2. Examine the motivation for social enterprise and social finance activities3. Build greater understanding of social enterprise and social finance4. Explore social enterprise and social finance models5. Review pathways for further engagement
    4. 4. ABOUT
    5. 5. ADVICE & MENTORSHIP EDUCATION1200 clients since 2006 85 Entrepreneurship educational700 active clients events programmed or delivered in9,000 hours of mentorship provided 2010in 2010 8,000 attendees at events in 2010 1.5M page views at marsdd.com in 2010INSIGHT ACCESS TO CAPITAL900 completed market research $108M capital raised by MaRS clientsrequests for over 800 companies and from angel and venture capitalentrepreneurs in 2010 investors and government in 2010$13.4M in free market research 600 new jobs created in Canada byprovided MaRS portfolio companies in 201013 market intelligence reportsproduced in 2010 covering topics suchas consumer digital health, water andclinical trials
    6. 6. ABOUTSocial Innovation Generation (SiG) at MaRS Provides advisory supports, convenes stakeholders, and accelerates social innovation initiatives Advisory supports provided to social entrepreneurs (for-profit and non-profit) including legal, business planning, IP, impact assessment, and financing advice Over 500 clients over the past four years Looking ahead: Leading initiatives over the next phase of development will be focused on advisory services, Centre for Impact Investing and the MaRS Solutions Lab
    7. 7. Concept paper written for in 2007, adopted as government policy in 2008.MaRS officially Social Finance Forum 2011opens in fall First Social Impact SiG@MaRS starts. Initiates first hosts 400 delegates and2005. Bond pilot launched Social Finance Forum. celebrates Centre opening. Pre-2007 2007 2008 2009 2010 2011 2012 Market grows by $284M Term “impact year overCanada shows investing” coined; year.impact investing Canadian Task RBC announces Rockefeller Force on Socialleadership with B Lab officially Foundation starts impact investingfounding of Finance launches strategy. opens in 2006. impact investingVancity in 1946, in December strategy. 2010.Sarona in 1954,CAIC in 1984, andle Chantier in1997.
    8. 8. ABOUTMaRS Centre for Impact Investing (CII)• hub of social finance excellence, serving as a neutral collaboration platform for private, community, and government sectors to work together, co-create new financial products and services, as well as develop talent and forward-looking public policies to grow the asset class.• recognized resource for Ontario and become the leadership hub on impact investing for Canada, building on our experience in the field of innovation and our work to date on the Task Force on Social Finance.• resource and partner for local, national, and global leaders in impact investing and mainstream finance, from Social Finance UK to the Global Impact Investing Network (GIIN).• focus on catalyzing the next phase of evolution, from uncoordinated innovation to marketplace building, and position Canada for success in a fast evolving field globally.
    9. 9. ABOUTPillar Description Strategic Initiatives Research and • Advancing the recommendations of the Task Force on Social Finance, including Public Policy legislative reforms and tax regulations. Impact • Developing and deploying best practice tools and models for measuring impact in Measurement nonprofit and for profit impact ventures. Market and Product • Catalyzing funds, connect investors and ventures and developing innovative tools Development (i.e. Social Impact Bonds). Education and • Educating and engaging prospective Engagement talent, ventures, and investors. Pg 10
    10. 10. Pg 11
    11. 11. ABOUTObjectives & Measures Initial Impact: 2011-2012 Deals: $30M in new impact investing deals in Canada; $5M Community Products: Supportive Investing Fund development of five new impact investing products; $1M Community Talent: Recruit and retain 100 Housing Bond highly skilled volunteers; Ventures: 100 ventures receiving financing or adopting $20-40M Social impact metrics; and Finance Strategy Policy: Successful advancement of the public policy $20M Impact recommendations of the Task Investing Strategy Force. Pg 12
    13. 13. MOTIVATION
    14. 14. MOTIVATION Why does social enterprise and social finance matter to you?
    15. 15. MOTIVATIONComplex challenges:We are faced with seemingly intractablesocial and environmental problems at aglobal, national, and local level.
    16. 16. Present Paradigm
    17. 17. Emerging Paradigm
    18. 18. MOTIVATION Constrained finances:Government revenues constrained due to modest economic growth and budgetpressures (deficit and rising core costs like health care). Donations constrained and showing evidence of decline.
    19. 19. MOTIVATIONDonations,Grants,Contributions(Gs&Cs) tonon-profitsunder stress. Source: Statistics Canada
    20. 20. MOTIVATIONGrowing movement:Growing number of charities, non-profits,co-ops and for-profit companies buildingbusiness models and turning to investorsfor financing to launch and scale upinnovative new programs, becomesustainable, and stimulate economicgrowth.
    21. 21. MOTIVATION Funder and investor interest:Growing number of funders and investors are interested in financing sustainable business models and investments that generate impact alongside financial return.
    22. 22. Professor Michael PorterBishop William LawrenceUniversity Professorat Harvard Business School
    23. 23. In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broadercommunity...The solution lies in the principle of sharedvalue, which involves creating economic value in a way that also creates value for society by addressing itsneeds and challenges…The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy.
    24. 24. The concept of shared value recognizes that societalneeds, not just conventional economic needs, definemarkets. It also recognizes that social harms orweaknesses frequently create internal costs for firms—such as wasted energy or raw materials, costly accidents,and the need for remedial training to compensate forinadequacies in education. And addressing societalharms and constraints does not necessarily raise costsfor firms, because they can innovate through using newtechnologies, operating methods, and managementapproaches—and as a result, increase their productivityand expand their markets.
    25. 25. MOTIVATIONOpportunity:Social enterprise and social financestrategies present an opportunity toleverage your assets and effectivelycomplement existing work to supportcommunity housing development,provide opportunity, and reduce poverty.
    28. 28. BACKGROUND Social enterprises are revenue-generating social and/or environmental enterprises (whether run as aproject, or as a separately incorporated entity) that are owned and operated by nonprofits or charities. They have the dual purpose of the dual purpose of generating income by selling a product or service in the marketplace and creating a social, environmental or cultural value.
    29. 29. BACKGROUNDFACTS & EXAMPLES Ontario has a mature and growing social enterprise sector:  Almost half of all Ontario nonprofits are engaged in social enterprise activity  One in five social enterprises has been operating for over 25 years  One third of nonprofit organizations without social enterprises plan on starting one in the next two years Examples of social enterprises include Goodwill Industries, Habitat for Humanity’s Restore, Centre for Social Innovation, Me to We
    30. 30. BACKGROUNDCHARACTERISTICSEffective social enterprises:  are clearly aligned with the mission of the parent nonprofit;  have a simple and valuable product or service offering;  focus on the desired impact for workers and customers;  receive long-term financial & technical support from capacity-building institutions.
    31. 31. BACKGROUNDBENEFITSThere are also many key benefits of social enterprise activity:  Increase the financial sustainability of an organization;  Enhance the core mission and impact of the nonprofit organization;  Provide employment opportunities, particularly for marginalized populations.
    32. 32. BACKGROUNDCHALLENGESSocial enterprises face challenges including: access to capital, lack ofenabling supports, and uncertainty regarding laws and regulations 100% 90% 86% 80% 76% 70% 60% 58% 55% 54% 50% 39% 40% 30% 20% 10% 0% Validating Internal Business Access to Legal & Legal & Financial Market Demand Resources Development & Capital Regulatory Expertise & Investor Buy- Risk Assessment Concerns In
    33. 33. BACKGROUNDADDITIONAL CHALLENGES Operational: hiring and training, authenticity, fit Balance: Investor demands, profitability and patient capital Philosophical: basic service delivery by government or private sector Impact measurement
    34. 34. BACKGROUND Social enterprise is not for every organization. It presents an opportunity for an exciting and important hybridization of the work of social good organizations, but it may be reckless for someorganizations to start a business or enterprising activity that forces them to drift from their core mission and ability to achieve positive impact.
    35. 35. BACKGROUNDSocial finance is an investment Profitsapproach which aims to solvesocial or environmentalchallenges while generatingfinancial return.This includes investments that rangefrom producing a return of principalcapital to offering market-rate or Planet Peopleeven market-beating financialreturns. Synonyms: Impact investing, community investing, and mission-related investing.
    36. 36. BACKGROUNDSocial Finance Marketplace Current market size in Canada estimated at ~$2 billion, projected to grow to $30 billion over next ten years Global impact investing marketplace is estimated at $50 billion, projected to grow to $400 billion over next ten years Funds: Over $250 million in funds (and foundation investments) with proven track record; 30 funds operating or in development Deals: There is measurable (private) impact deal activity in Ontario mostly focused on debt instruments. In total, there are over 200 “living” deals in place across the country. Key sectors: Clean technology, sustainable agriculture, microfinance and affordable housing Strong interest amongst governments and institutional investors, particularly foundations, HNWIs, and wealth managers (Recent investor survey: 70% interested in public housing bonds)
    37. 37. Energy efficiency Prime + 2% Poverty reduction Social housing units Impact + Return 8%Carbon reduction Jobs for marginalized 1% p.a. over three years populations
    38. 38. Recommendations toCanadian Task Force on Social Finance Catalyze a Sector Capital Mobilization Enabling Tax & Investment Pipeline Regulatory Environment 1. Mission Related 1. Pension Fund 1. Business Investing Assets Development Programs 2. Impact Investing 2. Regulatory Funds Frameworks 3. Impact Investing 3. Tax Incentives Products
    39. 39. MODELS
    40. 40. MODELS Housing funds Community loan funds Social enterprise business models Social enterprise incubation spaces and institutions Social impact bonds
    41. 41. Case Study:New York City Acquisition Fund
    42. 42. MODELS Motivation: formed in 2006 to address the shortage of affordable housing in New York City Goal: support the development of 30,000 low income housing units in New York City Target ventures: for-profit and non-profit affordable housing developers who refurbish existing units or build new housing Fund size: ~$200 million Investment size and term: Up to $7.5 mil (new build) or $15 mil (acquisition); lending period of up to three years Interest rate: variable interest rate currently indexed to prime (minus 40 – 60 basis points) Impact: $151M invested and 4,384 units created or preserved
    43. 43. MODELS Partners/Investors: Collaboration with the City of New York, major foundations (ie. Ford Foundation, Rockefeller Foundation), and private investment groups (ie. JP Morgan Chase Bank) Layered: Bank consortium provides senior debt as lending capital while other investors provides guarantees in the form of low- interest subordinated loans
    44. 44. Example Recipient:Serviam Gardens (FordhamBedham Housing Corporation)243-unit green, affordablehousing development for low-and moderate-income seniorsPurpose: Acquisition andpredevelopment financing for 10unit complex rehabilitation and73 unit constructionDeal: $3.6 million loanTerm: 36 months
    45. 45. Community Loan Fund:Ottawa Community Loan Fund (OCLF)OCLF turns investments and donationsinto accessible financing to fuelinnovation, expand opportunities andimprove lives.Financed by: Grant capital andinvestment capitalTarget: Small business, youthenterprises, trainingTerms: Variable (12 months – 5 years;Prime plus 6%)Loan Size: $5,000 - $15,000Impact: Povertyreduction, employment creationSuccess: Over $1M in capital mobilized
    46. 46. Toronto Enterprise Fund (TEF) Mission: support social enterprises that employ people who are socially marginalized Supports: grant funding and technical assistance Portfolio: Currently fund 13 social enterprises; enterprises had total sales of over $3M in 2010 Impact: 82 per cent said of participants that their job skills had improved, 74 per cent said their self esteem had gone up, and 60 per cent said their health had improved. 2,096 participants have been trained and/or employed by TEF funded enterprises since 2000.
    47. 47. Friends Catering CompanyFood services social enterprise ofthe Fred Victor Centre: aim: to train, mentor and offer jobs to people who have not worked for a long time, who lack the confidence to seek work or who have some mental or physical limitations employs 3-5 Fred Victor clients trainees worked more than 2,250 hours in 2010-11 and filled 261 catering orders training space for the Career Directions in Hospitality program offered in conjunction with Fred Victor’s Employment and Training Services Partners: United Way and foundations like McCutcheon Foundation.
    48. 48. St. John’s BakeryFood services social enterprise ofSt. John the CompassionateMission aim: to provide exceptional breads and sweets that use the finest ingredients and no preservatives, and a nourishing environment that responds to the needs of all those who contribute to the creation of these products employs people who have been outside the labour market, offering them training and opportunity for permanent employment received $350,000 in TEF financing for technical assistance and working capital Revenues grown from $81,000 in 2004 to $740,000 in 2009
    49. 49. Centre for Social Innovation (CSI)Non-profit social enterprise thatcreates communityworkspaces, incubates emergingenterprises, and develops newmodels and methods with world-changing potential Mission: to catalyze social innovation in Toronto and around the world Target ventures: nonprofits and social purpose businesses targeting economic, environmental, social and cultural challenges Home to over 250 organizations and projects in two Centres in Toronto
    50. 50.  School for Social Entrepreneurs (SSE-O)
    51. 51. MODELSSocial Impact Bond (SIB)Social Impact Bonds (SIBs) employ private investment capital topay for early intervention programs delivered by nonprofitservice providersSocial Impact Bonds monetize social outcomes by capturing thevalue between the cost of prevention now and the price ofremediation in the futureThe government pays investors their principal and a rate ofreturn only if programs achieve predefined results
    52. 52. MODELS Service providers Deliver evidenced based interventions/social services Investors Intermediary Coordinates relationships, measu res outcomes Provides upfront funding to delivery agents via Government Contracts with intermediary, receive intermediary for s percentage of cost preventative savings to services government Treatment Population Cost savings generated if outcomes are achieved
    53. 53. PATHWAYS
    54. 54. How can you engage in effective socialenterprise and social finance activity in Hamilton?
    55. 55. PATHWAYSAs a community: Coordinate Efforts: Develop a social enterprise working group and/or embed social enterprise/social finance initiatives into existing plans and strategies. Ensure all stakeholders, from tenants to housing providers to local politicians, are engaged in the conversation. Profile Success: Profile existing social enterprise and social finance. Identify Leaders: Identify organizations or institutions that can take leadership to fund, coordinate, build capacity, and deploy initiatives. Take Action: Execute strategies that build community resilience.
    56. 56. PATHWAYSProcessAs a nonprofit organization: Discuss: Discuss the opportunity with your staff and board. Connect: Meet with community partners and practitioners to learn more about how you might engage in social enterprise or social finance activities. Explore: Develop potential options and determine feasibility. Resource: Acquire the necessary human resources, technical supports, and financial support for an appropriate strategy. Deploy: Deploy a strategy that aligns with your core mission.
    57. 57. PATHWAYSSupportive Activities Board development and literacy: There are a growing number of organizations looking for a deeper level of understanding of the financial operations of their organization and others, as well as opportunities in social finance and their associated risks and regulatory implications. Financial fitness tests: There are organizations like the Community Forward Fund that can test your organization’s financial fitness. Enterprise feasibility: For those organizations interested in adding new enterprising activity or additional capacity, there are opportunities to work with paid & pro-bono advisors on financial feasibility. Performance Management: In an era of fiscal restraint and outcomes- based financing, performance management in the social sector is increasing relevant for: operational improvements, funders, benchmarking for evidence and performance-based contracts.
    58. 58. PATHWAYSOther InitiativesStakeholders can consider certain initiatives: Foundations: Develop a comprehensive social finance strategy, which would include setting aside a portion of your assets for impact investments. Consider setting aside grant funding for technical assistance for social enterprise activities. Local Government: Consider means of supporting social finance investments (e.g. loan guarantees) and encourage business centres/advisory services to provide support to social entrepreneurs.
    59. 59. Thank You www.socialfinance.ca/taskforce http://impactinvesting.marsdd.com aspence@marsdd.com
    60. 60. QUESTIONS