ENTR4800 Class 5 (Part 2): Financing Considerations for Social Enterprises


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ENTR4800 Class 5 (Part 2): Financing Considerations for Social Enterprises

  1. 1. ENTR 4800: Social Entrepreneurship Class 5 (Part 2): Financing Considerations for Social Enterprises Monday, October 17, 2011Instructors:Norm Tasevski (norm@socialentrepreneurship.ca)Karim Harji (karim@socialentrepreneurship.ca) 1
  2. 2. © Norm Tasevski & Karim HarjiAgenda•  Before the break…Part 1 (Costing Analysis for Social Enterprise – Separate Slide Deck)•  Financing Options Available to Social Enterprises (for-profit and non-profit)•  What do investors care about?•  What did we learn – today?•  Next week 2
  3. 3. Financing Options for SocialEnterprise… 3
  4. 4. © 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  DEBT  MORE DEBT-LIKE IDEA DEVELOPMENT PROOF OF CONCEPT START-UP SCALE REPLICATION EXIT Source: Alex Nicholls and Cathy Pharoah (2008) “The Landscape of Social Investment”, 4 http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestment.aspx
  5. 5. © Norm Tasevski & Karim Harji Another Way to Think of Financing Options… Cash Fixed Income Public Equity Private EquityHigher risk Lower risk Guarantees Lower risk Higher risk Grant Subordinated Private Equity Senior Loans Cash Support 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 5 Source: F.B. Heron Foundation and Jessica Shortall (2009): “Introduction to Understanding and Accessing Social Investment”
  6. 6. © Norm Tasevski & Karim HarjiFeatures of Different Funding Instruments 6
  7. 7. © Norm Tasevski & Karim HarjiAligning Supply and Demand… 7 Source: Alex Nicholls and Cathy Pharoah (2008) “The Landscape of Social Investment”, http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestment.aspx
  8. 8. © Norm Tasevski & Karim Harji Sources of Financing Banks/Credit Unions! Investment Management Firms! Vancity! Citizens Bank! Ecotrust Canada CAPE Fund! Capital! Alterna Savings! Canadian Co- operative Association! Fonds de solidarité! Renewal2 Desjardins! Investment Resilient Fund! Capital! Specialized Funds! Social Capital Partners!Canadian AlternativeInvestment Co-op! Community Loan Foundations! Funds (various, in Social Enterprise most major cities)! Edmonton Community JW McConnell Family Fund (Edmonton)! Foundation! Foundation! Ontario Trillium Grantors! Maytree Foundation! Toronto Enterprise Foundation!Enterprising Non- Fund!Profits! Tides Canada! 8
  9. 9. © Norm Tasevski & Karim Harji Sources of Financing Organized by Stage in the Venture Life Cycle Business Sources of ! Sources of Sources of Development Grants/Technical Equity Debt ! Stage! Assistance! Financing! Financing! • Centre for Sustainability (POD Grants)!Building • Coast Capital Savings Community Fund Grants! • Coast Capital Savings Foundation (youth)!Organizational • Endsweel Foundation!Capacity! • Tides Foundation! • Vancity Savings Credit Union Grants! • Vancity Community Foundation grants! • Vancouver Foundation! • BCT SVP!Business Plan • CEDTAP grants!Development! • Coast Capital Savings CED Department! • Enterprising Non-Profits! • Vancity Community Foundation grants! • BCT SVP! • Renewal Partners! • CCEC!Start Up! • Social Venture Partners! • Community Futures Development • New Social Venture Fund! Corporations! • Coast Capital Savings – Rising Tide 2 Fund! • Ecotrust! • Vancity Savings Credit Union! • Vancity Community Foundation loans! • Renewal Partners! • Vancity Capital Corporation! • Social Venture Partners! • Ecotrust!Operating! • New Social Venture Fund!
  10. 10. What do (social) investors careabout?… 10
  11. 11. © Norm Tasevski & Karim HarjiFinancing Considerations Used by theCanadian Alternative Investment Co-Op (CAIC)CAIC’s Criteria:•  What is the project?•  What is the social benefit?•  Provide a detailed description of: –  i) how the project is going to be financed; and –  ii) how it is going to operate on an ongoing basis What does CAIC care about? Your ability to tell your “story” in a clear, simple & compelling fashion!! 11
  12. 12. © Norm Tasevski & Karim HarjiCAIC Financing Considerations:ManagementCAIC’s Criteria:•  Staff and management –  Highlight relevant experience•  Board of Directors –  Highlight relevant expertise/experienceWhat do they care about? –  The caliber of the individuals undertaking the project –  Who is giving your guidance, what resources and experience you are drawing on 12
  13. 13. © Norm Tasevski & Karim HarjiCAIC Financing Considerations: InvestmentProposal (1)CAIC’s Criteria:•  Amount of loan requested•  Terms of repayment: term, amortization, interest rate•  Collateral or potential guarantors•  Demonstrate sound and realistic business case What do they care about? Whether you can present a Sound, Realistic, Understandable business case 13
  14. 14. © Norm Tasevski & Karim HarjiCAIC Financing Considerations: InvestmentProposal (2)CAIC’s Criteria:•  Shared risk•  Multiple sources of capital•  Present sources of credit•  Potential sources of credit (inc. their response)What do they care about?•  That you’ve considered ways to mitigate risk to investor•  That you have multiple and sufficient sources of capital 14
  15. 15. © Norm Tasevski & Karim HarjiCAIC Financing Considerations:Financial Organizational CapacityCAIC’s Criteria: –  Most recent internal operating statement & balance sheet –  Budget & cash flow projections for the current and upcoming year demonstrating how the CAIC loan would be repaid –  Financial Statements (audited or reviewed) for the last two years –  Organizational financial management practices (i.e. financial planning, organizational resources, financial operating systems, & financial soundness)What do they care about?: That you’ve mapped out all aspects of the business/operations, and that they are getting the attention that they need 15
  16. 16. © Norm Tasevski & Karim HarjiWhat did we learn? 16