March 28th – April 2nd 2009

Key Takeaways

1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

The primary aim of SiG is to encourage effective methods of addressing social problems on a national scale.

The activities of SiG serve to facilitate the exploration of structural, institutional and systemic evolution in order to promote broad system change.

A national collaboration to fast-track Canada’s adoption of social finance.

Part broker, part incubator, part think-tank, part consultancy, Volans works globally with entrepreneurs, businesses, investors and governments to develop and scale innovative solutions to social and environmental challenges..

Volans is based in London and Singapore. www.volans.com

Culture of Social Innovation

Public Policy Social Finance

Social Entrepreneurship Social Enterprise

•  An organization or venture (within an organization) that advances a social mission through entrepreneurial, earned income strategies. ~Social Enterprise Alliance

Social Enterprise

•  Social innovation is a complex process of introducing products, processes or programs that profoundly change the basic routines, resource and authority flows or beliefs of the social system in which they arise. Such successful social innovations have durability and broad impact. ~ Dr. Frances Westley

Social Innovation

•  An entrepreneur who engages in business seeking both financial and social return ~ PFC (Philanthropic Foundations Canada)

Social Entrepreneurship

Social Finance is the flow of financial capital to human need uses:

•  Affordable Housing •  Social Enterprise •  Support for working families •  Health & Home Care •  Community Development •  Social Economy •  Clean Technology •  Microfinance •  Fair Trade •  Green Building •  Education •  Bottom of the Pyramid

Key Definitions – Social Finance

Charity and Non-profit

Government Business

Hybrid Space

source: market sector listing adapted from www.xigi.net)

1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

9 A healthy social finance marketplace contains many different MODELS

Investment Type UK Examples Canadian Examples Financial Institutions Triodos, Charity Bank Vancity Financial Investment Product Universe

Social Investment Forum, GSI

Jantzi Index

Social Venture Capital - business

Catalyst Investeco, Renewal 2

Social Venture Capital – social enterprise

Bridges Ventures, Venturesome

Resilient Capital

Government Loans Future Builders Fiducie Chantier de L’economie Sociale Trust

Non-Government Grants Unltd. Enterprising Non Profits (ENP) – BC and ON

Philanthropy Esmee Fairbairn McConnell Foundation Vancouver Foundation Ontario Trillium Foundation, Wellesley Institute

Unsecured Loan

Overdraft

Quasi-equity Equity Grant

Pre-funding Capital

Fundraising Working Capital (open)

Soft Development Capital

Standby Facility

LOW RISK HIGH RISK

Hard Development Capital

Increasing evidence of commercial finance available

Patient

Capital

Secured loan

Working Capital (closed)

LOW

CHANCE OF REPAYMENT

HIGH

CHANCE OF REPAYMENT

Need for further supply of capital and development of financial instruments

What does Canada’s spectrum look like?

Venturesome’s Spectrum of Venture Capital Investment

Courtesy of Paul Cheng at Venturesome

Dark grey area show where supply of finance is readily available

Light grey area is where there is a need for more capital and instruments

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Paul Cheng - Venturesome

3 models of social enterprise 1. Profit Generator – goal to get profit and give some (or all) away to charity

(Patagonia)

2. Trade Off Financial and Social Returns - activity has social impact, but needs to trade off between financial and social impact (ie, The Hoxton)

3. Lock-Step – no trade- off between social and financial impact - if one side goes down, the whole organisation does (ie. community wind farms)

Creating Social Finance Solutions

- 100% + 8% 0% Capital-protected Market-rate return Grant-makers

- 15%

Courtesy of Paul Cheng at Venturesome

Venturesome is not a bank, nor a granting organisation - it provides underwriting/stand-by facilities, unsecured loans and equity and quasi-equity

•  Responding to issues in the third sector – charities are undercapitalized with weak balance sheets and a ‘donor’ culture rather than an ‘investor’ culture

•  Provided £12m to 200 organisations, with a default rate of less than 5% •  Current fund is £10m with banks, foundations and HNW individual investors •  Exploring the ‘negative return’ spectrum

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Skye Heller and Antony Ross – Bridges Ventures

•  Currently running 2 Community Venture Funds (Bridges CDV1 is a £40m fund and Bridges CDV2 is a £75m fund) with investments focussed on delivering a financial and social return.

•  Investment focussed on under-invested inner city areas of London

•  Reports to investors include the social impact as well as the financial and economic progress of investments

•  Exits are flexible – trade sale, float or manager buy-back

•  November 2008 launched the £4.25m Social Entrepreneurs Fund – a charitable trust which invests in scalable social enterprises delivering high social impact

Social Venture Capital Models

Portfolio Company Example – THE GYM •  No-frills, clean gyms with good equipment, open 24 hr/day • Located in lower income communities •  £14.99/month with no contracts • Social benefit (providing health benefits to lower income communities) and financial benefit to investors (company is expanding)

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The Role of Banks Whitni Thomas – Triodos Bank Opportunity Fund

•  Triodos Bank only finances enterprises with which add social, environmental and cultural value - using finance and capital to fuel social change

•  €3.5 Bn with operations in 5 EU countries

•  Involved in the Global Alliance for Banking on Values Banking

•  Triodos’ Opportunity Fund looks to return a profit to LPs through investment in social enterprises – providing both funding and support as they grow

The biggest problem is deal flow....

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Rod Schwartz – Catalyst and ClearlySo •  Catalyst has 4 areas of activity; Fund Management,

Information and Research, Advisory Services and Events.

•  ClearlySo is an online marketplace for social business, enterprise and investment.

•  Similar to mainstream VC – big returns are needed in some investments to offset the risk and inevitable losses in others

Financing Social Businesses

It's a business that integrates commercial objectives (growth, profits) with a social, ethical or environmental one

Looking for scale and high return – is this possible in Canada?

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The UK marketplace also contains many social finance INTERMEDIARIES

Social Enterprise

Growth

Research Guidestar Ashoka

Investment Bank

Social Finance Ltd

Corporate Finance Catalyst

Legal Structures

CIC’s

What systems exist in Canada?

Toby Eccles and Alastair Ballantyne – Social Finance Ltd.

•  Action- research projects focused on applying tools and expertise of investment banking and other financial sectors to social finance and the third sector

o  Social Investment Bank - per recommendations from the Commission on Unclaimed Assets (approx value of Canadian unclaimed assets is $300m)

o  Savings/loan Vehicle for those with disabilities (like the RDSP in Canada)

o  Social Impact Bond (financial derivative) ie. looking at ways of reducing reoffender rates and calculating the value in social and financial terms

Building & Applying Financial Tools

Lessons from UK: Strategic conversations need to be nonpartisan to remain relevant in the long term

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Mission Based Investment Buzz Schmidt – Guidestar International and F. B. Heron Foundation

•  F. B. Heron Foundation is a $350m foundation where the corpus is put into action by deploying the endowment into mission related investment without conceding returns

•  Limitations exist in Canada on missions based investing

•  Guidestar International is an online service which provides details reports on CSOs (civil society organisations) to improve their visibility to those who support their work

•  Create competition for the philanthropic dollar (disappointing to see no other foundations making a play for Buffet’s gift to the Gates Foundation)

•  Business model involves partnering with foundations and other grant-makers

•  Some of the leg-work completed in Canada and system uploaded with CRA data – would cost $250K/yr to run it

Guidestar International is looking for Canadian partnerships

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SIO & SRI Mutual Funds

High Net Worth Individuals

Federal and Provincial

Government

Private Companies

Credit Unions

Insurance Companies

Pension Funds

Mainstream Banks

How do we engage and connect the individuals in these stakeholder groups? What is he role of crowd sourcing and micro-investors?

Foundations Charitable Endowments

Financial Stakeholders

1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

20

Rosemary Mitchell – Futurebuilders

•  Set up by Home Office with funds sitting partially in this office and partially in the treasury – commercial agreement with a fund manager

+300 investments, mostly healthcare, education and children

•  In addition to funding, also provides professional support (finances, contracts...)

•  Recently awarded £100m DOH fund contract in consortium with Partnerships UK

Government Programs Funding services

What role should government play in creating social capital markets?

Futurebuilders provides loans and grants to the Third Sector £250m fund

Stephen Lloyd and Lindsay Driscoll – BWB LLP •  Under British Law tax relief exists for charities, but not social

enterprises •  Need new kind of company- Community Interest Company (CIC) •  2,628 CICs established in 3.5 years

•  Founder control of social enterprise •  Asset-Lock which prevents privatization •  Allows for financing through debt (secured or unsecured) or

equity (share issuance permitted with dividend cap with a maximum annual dividend, 5% above base rate, total 35% net distributable profits)

•  Allows for payment to directors

•  Explore tax break effects in to encouraging investment (charities and high growth companies receive this consideration)

•  Only CICs limited by shares can use debt AND equity – those limited by guarantee can only use debt financing

Building Speciality Legal Structures for Social Enterprises

Key Elements of CIC legal structures

Issues that need to be addressed to improve the CIC

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What is an appropriate legal structure?

What is CIC?

Each model has its pros and cons...what is right for Canada?

What is an L3C?

What is the Community Enterprise Act?

Community interest companies (CIC) are a type of limited company designed specifically for those wishing to operate for the benefit of the community rather than for benefit of owners of the company..

CICs can be limited by shares, or by guarantee, and will have a statutory “Asset Lock” to prevent the assets and profits being distributed, except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes, or transferred to another asset-locked organisation, such as another CIC or charity.

L3C'sare low-profit limited liability corporations, which function via a business modality that is a hybrid legal structure combining the financial advantages of the limited liability company, an LLC, with the social advantages of a non-profit entity. An L3C is run like a regular business and is profitable. However, unlike a for-profit business, the primary focus of the L3C is not to make money, but to achieve socially beneficial aims, with profit making as a secondary goal.

Sector leaders in Canada are exploring the creation of a legal structure, learning from CIC and L3C models.

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Arthur Wood - Ashoka

• Foundations, banks and private sector must all be involved in developing and leveraging innovative financing models which bridge the profit and non-profit worlds

•  CICs (UK) L3Cs (US) are tools which can stretch the full the investment spectrum

Financing Structure and Gaps

Grants Recoverable Grants

no financial return below market return market return

Programme Related Investment

Adapted from Arthur Wood and based on ‘Foundations and Social Investment’ Margaret Bolton 2005 and Bates Wells & Braithwaite

L3C / CIC

Social Investment

Mainstream Investment

Legal structures can be tools which bridge different return requirements

1. Tour Overview

2. Social Finance

3. Public Policy

4. Culture and Enabling Environment

5. Actions

25

Jonathan Bland – Social Enterprise Coalition

•  Formed in 2003, today 20 staff and £2m turnover

Advocacy and Awareness Programs Uniting the networks to form a coalition

IDEA! Evolve current social enterprise networks into a structured coalition

Social Enterprise Coalition has 3 key activities 1.  Awareness/Promotion: media, events and

ambassador program

2. Best Practice Research: case studies, ‘how to’ guides and training materials

3. Inform Policy Agenda: advocating for a strong culture for social enterprise

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Social Innovation Public services for public benefit Rowena Young – NESTA

•  NESTA (National Endowment for Science Technology and the Arts) – endowment of £300m focussed on ‘radical’ innovation (rather than ‘incremental’ innovation)

•  Looking at the incentives that can motivate radical change – ie challenge grants

•  New initiative is ‘The Lab’ which fosters innovation in public service by bringing together people from the public, private and third sectors to collaborate on practical projects

What programs from NESTA work and should be replicated in Canada? What opportunities exist?

Rushanara Ali – The Young Foundation •  Focussed on building the field of social innovation –

systematically encouraging it by developing ideas, working with local agencies and developing scale strategies

•  Programs include:

•  Health Launchpad – provides funding and support for health related innovation (in partnership with NESTA)

•  Language Line – providing translation services for public service

•  Plan my Care – provides help to the elderly in accessing programs designed specially for them

Innovation Foundation Applied Research and Incubation

What programs can be replicated in Canada?

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Teaching Social Entrepreneurship

Nick Temple – School for Social Entrepreneurs •  School for Social Entrepreneurs provides training to

social entrepreneurs – currently approx 40 students with another 7 schools in the UK

•  Focus on small group action-learning and runs once a week for a year with courses including ‘expert witness’, ‘project visit’ and ‘peer learning’

•  Cost is £8500 with bursaries and subsidies available

Charles Takawira www.healthcarelink.org

A not-for-profit, community investment organisation which recovers and redistributes surplus medical supplies and

equipment ,with a dedication to a three-fold mission of environmental stewardship, job opportunity creation for

the marginalised, and improving health in Africa.

Max Graef www.radioactive.org.uk

RadioActive provides complete technical services, equipment and training to

communities and NGOs around the world, to help them build and run community radio stations and

recording studios

Entrepreneurs have the ability to see opportunity and drive change

Cliff Prior, Jonathan Jenkins, Michael Norton, Jessica Nugent – Unltd.

•  Unltd. is a support program from social entrepreneurs (not enterprises) and founded with a £100m endowment fund from Millennium Awards Trust

•  Works with 1000+ social entrepreneurs and spend £7.5m per year •  3I’s : INVEST in INDIVIDUALS with IDEA

Provides 3 different levels of awards: •  L1: £500 - £5K – focuses on first steps building entrepreneurial capacity •  L2: up to £15K - focuses on freeing up individuals’ time to develop project •  L3: up to £20K - focuses on replication and scaling up

•  Partnership with Bridges Ventures connected to investment readiness •  Youth programs include Unltd. Sport Relief (funding young people to develop

ideas to reduce social conflict) which work because of freedom & structure, trust the people and run by young people for young people

•  Unltd. World –www.unltdworld.com - 9000 members (3/4 active) includes real-time data mapping, community building and marketplace

Supporting Entrepreneurs Encouraging social entrepreneurship

Unltd. is rolling out globally – is Canada interested in a partnership?

Tim Draimin Executive Director,

Social Innovation Generation (SiG) tim@sigeneration.ca

416-673-8171