Slide 1 The Young Foundation 2010

Social finance for the youth sectorA market analysis

The Young Foundation 7th June 2011

Slide 2 The Young Foundation 2011

Introduction•11,ooo charities that comprise VCYS are under unprecedented pressure •Income streams to March 2012 reduced by a quarter • Changes to who pays, how and what’s expected in return•Ongoing challenges to find capital to grow capacity and entrepreneurialism to respond•Interest in social finance building

Slide 3 The Young Foundation 2011

What is social finance?

•Capital investment in social impact, as well as financial return•Equity investment and loans

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Methodology

•Report seeks to assess the youth sector market for social finance •Online survey with 97 respondents•Telephone interviews with 14 CEOs and Directors plus social investors

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The social finance market for the VCYS

Supply

Demand -Start-up: finance for innovation- Scale-up: finance for growth, mergers & acquisitions - Cash-flow: finance for working capital

Business models: - Grant-based- Contracting – including payment by results and social impact bonds- Earned income

- Public sector income- Private income, including from trusts and foundations and charging

Capital Revenue

- Public capital investment- Private finance - Social finance

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Assessing revenue: who pays?

N=53

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And in the future?

N=53

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The challenges facing the sector•Reductions in public spending on VCYS•Changing public sector commissioning approaches•Pressure on private and charitable sources of income

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The response?

•Re-thinking business models•Telling a strong story about value•Creating new ways to work together

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How confident is the sector?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

My organisation has evidence of an improvement in outcomes for young people

My organisation can demonstrate the difference we make to young people compared to those

not benefitting from our service

My organisation knows how much money it saves other public services

My organisation could maintain its service without public funds

My organisation could manage if half of its income was paid only when improvements in

outcomes were made

Very confident

Fairly confident

Not sure

Fairly unconfident

Very unconfident

N=53

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Assessing capital: supply and demand •Strong and growing interest in social finance•1 in 10 VCYS organisations surveyed identified themselves as ready for social investment •20% expect to receive up to 5% of their income from social finance in three years •Translates to up to £5 million worth of social finance

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Providers and types of social finance

• High street banks (RBS, Barclays etc): mainly overdraft facilities, some secured lending - but generally do not understand the charity sector

• Specialist banks (mainly secured bank lending, mortgages etc): Triodos, Unity Trust, Charity Bank, Coop Bank.

 • Social investment funds: offer semi-commercial loans and

(quasi-)equity for returns: CAF Venturesome, Big Issue Invest, BridgesVentures

• Venture philanthropy funds : offer capital grants with capacity-building advice: Impetus Trust, Social Business Trust, UnLtd, CAN-Breakthrough, VPF , Private Equity Foundation

• Social finance advisories: Social Finance Ltd, UnLtd Ventures, and others.

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Three main social finance needs for the sector•Start up: finance for innovation and start ups •Scale up: finance for acquisitions and mergers •Cash flow: finance to provide working capital

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Is the sector ready? •For the vast majority, social finance is some way away as a viable option •Four common challenges

- Understanding

- Capability

- Capacity

- Security

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Conclusions •Interest and openness to social finance•Existing investors only cater to a proportion of the youth sector•Social finance cannot be a ‘cure all’•VCYS organisations need support to establish new business models and demonstrate impact•Working in collaboration and consortia •Social finance needs to evolve to fit the needs of the sector

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Where next? •Proactive support to the sector to build capacity and capability •Seek out and support innovative organisations – stronger impact but higher degrees of risk•Provision of non-financial support

- understanding social finance- addressing internal capacity/capability issues - telling a strong story about impact and value- diversifying income streams

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Questions…•Do the findings ring true?•What does this mean for the youth sector?•What does this mean for investors?

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Contact

Bethia McNeil Bethia.mcneil@youngfoundation.org

0208 980 6263