ENTR4800 Class 7 - Impact Investing and Social Capital Markets


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  • ENTR4800 Class 7 - Impact Investing and Social Capital Markets

    1. 1. ENTR 4800: Social Entrepreneurship Class 7: Impact Investing and Social Capital Markets Monday, November 1, 2010Instructors:Norm Tasevski (norm@socialentrepreneurship.ca)Karim Harji (karim@socialentrepreneurship.ca) 1
    2. 2. © Norm Tasevski & Karim Harji
    3. 3. © Norm Tasevski & Karim HarjiAgenda• Kiva.org• What did we learn – Last Week?• Overview of Impact Investing & Social Capital Markets• Activity: In the Investor’s Chair• What did we learn – Today?• Next week 3
    4. 4. © Norm Tasevski & Karim HarjiLast Week – What did we learn? 4
    5. 5. Ethical Investing Mission-Related Investing Responsible Investing Venture So, what are we talking about? Philanthropy Program-Related Investing Charitable Giving Social Finance Impact Investing Donations Value-Based Investing Socially Responsible Investing Environmental, Blended Value Social and Governance Social Investing Screening Triple-Bottom-LineMission-Driven Investing Sustainable & Responsible Investing 5
    6. 6. © Norm Tasevski & Karim Harji The Looking-Glass World of Nonprofit Money TRUE or FALSE?F• The consumer buys the product • Price covers cost and eventually produces profits, orF else the business foldsF• Cash is liquid • Price is determined by producers’ supply andF consumers’ ability and willingness to pay • Any profits will drop to the bottom line and are thenF available for enlarging or improving the business • Investment in infrastructure during growth is necessaryF for efficiency and profitability • Overhead is a regular cost of doing business, and variesF with the business type and stage of development 6Full article available at: http://nonprofitfinancefund.org/files/docs/2010/NPQSpring05.pdf
    7. 7. © Norm Tasevski & Karim Harji The Spectrum of Markets FINANCIAL CAPITAL IMPACT INVESTING PHILANTHROPY MARKETS MARKETS (GIVING MARKETS) RETURN Financial Return Financial + Social Return Social ReturnMEASUREMENT Financial Performance Measurement Financial + Social Measurement Social Performance Measurement • Debt • Debt • Grants INVESTMENT TYPE • Equity • Equity • Retail (mutual funds, online brokers) • Retail (online micro finance) • Retail (offline channels, online • Institutional (Exchanges, Alternative • Institutional (Impact Funds, giving, Donor Advised Funds) PLATFORMS Trading Systems) emerging platforms) • Institutional (Foundations) AVERAGETRANSACTION About 5% About 10% About 30% COST FINANCIAL SOCIALLY CAPITAL RESPONSIBLE MARKETS INVESTING MARKET SIZE Social Screening and Shareholder Advocacy $5 Billion $300 Billion $50 Trillion $7 Trillion SOCIAL CAPITAL MARKETS / MARKETS FOR GOOD
    8. 8. © Norm Tasevski & Karim Harji Social Finance Continuum Purely Philanthropic Purely Commercial Social Enterprise SociallyOrganization Traditional Non- Traditional (Non-Profit & For- Responsible Type Profit Corporate Profit) Corporate Non-financial Social mission with Profit driven with mission (socialPrimary Goal minimum social and/or Profit driven and/or expectation of environmental (economic value) environmental financial return objectives value) Below-market Market-rate capital Donations and capital, or mix of Capital (including SRI Market-rate capital Grants donations and investments) market-capital rate Subsidized rates or Charge for Beneficiaries pay mix of full payersProducts and Market-rate prices Market-rate prices nothing and those who pay Services nothing 8Jed Emerson (2003) “The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation ”
    9. 9. © Norm Tasevski & Karim Harji The Social Capital Market Intermediaries Non-ProfitsSocially Responsible Investment Credit Unions Social Enterprises Commercial Investors Social Stock Exchanges Social Purpose Businesses Venture Philanthropists Community Loan Funds Co-Operatives Foundations Rating Agencies Entrepreneurs Taxpayers Associations Social Economy Organizations Supply Demand 9
    10. 10. © Norm Tasevski & Karim HarjiSocial Finance Across Canada 10
    11. 11. © Norm Tasevski & Karim HarjiSerge LeVert Chiasson 11
    12. 12. © Norm Tasevski & Karim Harji Supply of Finance Fixed Public Private Cash Income Equity EquityHigher risk Lower risk Guarantees Lower risk Higher risk Subordin Grant Private Senior ated CashSupport Equity Loans Loans -100% -90% to -10% 0% 1% to 7% 8% + Capital-protected Commercial-return Grants “Soft” Investments investments investments Very soft debt Market-rate debt “Blended return” equity Social returns only Mix of grants and Equity Soft debt other capital Full commercial returns Willing to take below- Willing to lose Social benefit can be a market return some money requirement 12 Source: F.B. Heron Foundation and Jessica Shortall (2009): “Introduction to Understanding and Accessing Social Investment”
    13. 13. © Norm Tasevski & Karim HarjiFinancing Options – Over the SocialEntrepreneurship “Life Cycle”MORE EQUITY-LIKE GRANTS SOCIAL VENTURE CAPITAL FUNDS ANGEL INVESTMENT VENTURE CAPITAL PROGRAM-RELATED INVESTMENT/RECOVERABLE GRANTS FORGIVABLE LOANS SOCIALLY RESPONSIBLE INVESTMENT FUNDS BELOW-MARKET DEBT MARKET-RATE DEBTMORE DEBT-LIKE IDEA DEVELOPMENT PROOF OF CONCEPT START-UP SCALE REPLICATION EXIT Source: Alex Nicholls and Cathy Pharoah (2008) “The Landscape of Social 13 Investment”, http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestme
    14. 14. © Norm Tasevski & Karim Harji Supply: Major Players Source: Social Venture Exchange (SVX) DEBT EQUITY VANCITY CAPITAL CORPORATION ($50k to $10 mil) CAIC: MORT. (Up to $500k) SCP INVESTECO (Up to $300k) (Up to $2 mil) CAIC: ENTERPRISE (Up to $50k) RENEWAL FUND (Up to $2 million) ACCESS COMMUNITY TSX CLEANTECH CLUSTER CAPITAL ($10 - $100+ mil Deals) CAPE FUND (Up to $5k) ($1 - 7.5 million) OTTAWA COMMUNITY LOAN FUND (Up to $15k)$0 $500,000 $1 million $10 million $100 million
    15. 15. © Norm Tasevski & Karim HarjiAligning Supply and Demand 15 Source: Alex Nicholls and Cathy Pharoah (2008) “The Landscape of Social Investment”, http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestment.
    16. 16. © Norm Tasevski & Karim HarjiAdam Spence 16
    17. 17. © Norm Tasevski & Karim HarjiWhy Intermediation Matters• Scale = reduce transaction and search costs• Investment readiness of ventures• Common language and industry standards• Risk assessment tools• Assessing social value creation Who will build (and pay) for these intermediaries? 17
    18. 18. © Norm Tasevski & Karim Harji Alterna Community Alliance Housing Fund• Created to address Ottawa’s affordable housing shortage• Provided low-cost financing for second-mortgage financing• Structured as investment grad instrument offering a five-year GIC ROR• Took 7 years before PSAC was able to find a “risk-free vehicle” to do this! Carleton Centre for Public Service Alterna Savings Ottawa Community Community Alliance of Canada Credit Union Loan Fund Innovation• Invested $2m to • Structured an • Non-profit • Intermediary that create the fund investment vehicle responsible for helped to align the• Committed to to provide market screening projects interests of the responsible rate of return as that are groups investing well as direct • Affordable to • Suggested• Market rate of social impact those most in alternative models return in a • Provides need drawing on “vehicle” that operational / • Affordable in the research and fulfilled fiduciary admin. support long-term experience from responsibility • Constructed by the US and UK unionized workers Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada” 18
    19. 19. Break 19
    20. 20. © Norm Tasevski & Karim HarjiExercise: In The Investor’s Chair• Which business is suited to which type of investment?• Which business would you invest in?• What can you improve on to pitch to investors? 20
    21. 21. © Norm Tasevski & Karim HarjiWhat did we learn? 21
    22. 22. © Norm Tasevski & Karim HarjiNext Week• Jon Packer, Idea Workshop• Deliverable: Have Questions Ready!!• Readings 22