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Blake Lapthorn’s green breakfast seminar on Social Finance - 27 March 13
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Transcript of Blake Lapthorn’s green breakfast seminar on Social Finance - 27 March 13
©Social Finance 2012
2
SOCIAL FINANCE IS PASSIONATE ABOUT IDENTIFYING NEWWAYS OF TACKLING ENTRENCHED SOCIAL ISSUES –
WAYS WHICH ARE SUSTAINABLE AND SCALABLE
©Social Finance 2012
Change the way government seeks to tackle problems
Help build and support growth of strong, effective social enterprises
Expand the range of investors able to participate in social
investment
WHAT DO WE DO?
IN ORDER TO
AND THEREBY DELIVER SOCIAL CHANGE
3
©Social Finance 2012
OUR ROLE IN THE MARKET 4
SOCIAL FINANCE DESIGNS FINANCIAL STRUCTURES THAT ENABLE MORE CAPITAL TO REACH THE SOCIAL SECTOR
Research & Development
Financial StructuringCapital Raising
Social Finance
Government Social Service Providers
Investors
Key social issues
Social Investor Market Growth
Supporting Effective Organisations
Long-term Social Change
©Social Finance 2012
THE STARTING POINT: CONSISTENT UNDER-INVESTMENT IN PREVENTION
5
Higher level of spending
on crisis interventions
Poorer social outcomes,
more require crisis
interventions
Fewer resources
available for early
interventions
CAN THE LONG TERM SAVINGS FROM AVERTING POOR OUTCOMES BE USED TOINVEST IN PREVENTATIVE SERVICES?
©Social Finance 2012
SOCIAL IMPACT BONDS CATALYSE POSITIVE CYCLES OF GOVERNMENT SPENDING, IMPROVING SOCIAL OUTCOMES AND REDUCING COSTS
6SOCIAL IMPACT BONDS CAN UNLOCK THIS
SOCIAL IMPACT BONDS
Money to invest in earlier
interventions
More early interventions
Better outcomes; fewer individuals requiring crisis interventions
Lower spending on crisis interventions
©Social Finance 2012
FUNDING REHABILITATION AT PETERBOROUGH PRISON 7
Providing volunteer support post intensive phase or with lower risk/need clients pre and post release
INVESTORS
£5 million
SOCIAL IMPACT PARTNERSHIP
St Giles TrustSupport in prison, at the prison gates
and in the community
Support to prisoners’ families while they are in prison and post
release
Other InterventionsSupport needed by the
prisoner, in prison and the community. Funded as the
need is identified eg. Lower level mental health
support
3,000 male prisoners sentenced to less than 12 months
Reduction inre-offending
MINISTRY OF JUSTICE/
BIG LOTTERY FUND
Payment based on reduced
convictions
St. Giles Trust Ormiston Trust SOVA Other Interventions
Return depends on success
©Social Finance 2012
RECENT PROGRESS
Young people in or on the edge of care
•Awarded contract by Essex County Council to deliver and finance multi-systemic-therapy to over 380
adolescents on edge of care system in Essex over next 8 years – outcomes financed by savings from
reduction in care placements
•Advising Manchester City Council on options to raise social investment to fund multi-dimensional
foster care working with vulnerable adolescents
Improving education and employment prospects for young people
•Awarded two contracts by Department of Work and Pensions to work with specific groups of 14-16
year olds with outcome payments made at agreed milestones
Prisoner rehabilitation
•Chris Grayling has announced an intention to look at the feasibility of rolling out outcome based
rehabilitation projects nationwide
Homelessness
•Advising Greater London Authority on procuring interventions to address rough sleeping financed by
£5 million outcomes budget
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©Social Finance 2012
ENGAGING WITH KEY POOLS OF INVESTOR CAPITAL 10
INSTITUTIONS CORPORATESHIGH NET WORTH
INDIVIDUALS
MASS AFFLUENT
TRUSTS AND FOUNDATIONS
£70bn assets in UK
Investor Advisory Services
Global Social Impact Fund of Funds
Venture Capital Trust
NEAR TERM FOCUS MEDIUM TERM FOCUS
Investors
Intermediaries
Could philanthropy be an asset, not an expense in their balance sheets?
Enterprise Investment Scheme as a wrapper for SIBs
STRUCTURED FUNDS
ISAs £92bn£488 bn
Early signs of Local Authority Pension Funds interest.
The Results Fund
BIG SOCIETY CAPITAL SEEDED FUNDS
Impact Ventures UK FundNesta Impact Investment Fund
Specialist VCT: Social Impact March 2013
SOCIAL IMPACT VCT plc
Two worlds. Brought together. Investing for social impact and financial return.
Social Impact Venture Capital Trust (VCT)
Type Specialist, 8 year planned exit VCT
Size £20 million
ManagersFSE Fund Managers Limited (part of the FSE Group)Social Finance
FocusProfitable and/or growth companies delivering measurable social impact
Minimum investment size £2,000
Expected timing For tax years 2012/13 and 2013/14
Summary
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VCT is a well-known product for new market with rising demand
Social Returns: Four Pillars of Social Impact
Building Futures Community Cohesion
Socially-motivatedBrands
Health and Education
Companies engaging with people who are marginalized, vulnerable or disadvantaged to help build their futures.
Companies working in local communities to support cohesion and improve access to services and opportunities.
Companies promotingthoughtful consumerbrands that createtheir products andservices in an ethical orsocially-motivated way.
Companies building human capital by enhancing health and education provision for individuals.
Examples:
Careers Development Group (CDG)CRI
Examples:
Charity Technology Trust (CTT) HCT Group (Hackney Community Transport)Greenwich Leisure Limited (GLL)
Examples:
CafédirectDivine ChocolateJustGivingJoJo Maman BébéTimpson
Examples:
Bromley HealthcareCentral Surrey HealthAvenues GroupCool2Care
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Commercial revenues generating profit for social purpose
Financial Returns: Income and Return of Capital
Investment Type Returns Capital Repayment
Established Social Enterprises
Current Yield: HighExit Yield: Low / Nil
Non-Exit: Refinancing / recapitalisation Exit: Pre-commitment-to-find buyer Capital gain unlikely to be main driver of return
Contract-underpinnedSocial Enterprises
Current Yield: HighExit Yield: Low / Nil
Non-Exit: Refinancing / recapitalisationExit: Pre-commitment-to-find buyerCapital gain unlikely to be main driver of return
Early-stageSocial Enterprises
Current Yield: Medium / LowExit Yield: High / Medium
Non-Exit: Refinancing / recapitalisationExit: Commitment-to-find buyer - or -core business saleCapital gain may be material component of return
14
Investment policy:• Capital preservation focus• Returns driven by “current yield”• Repayment driven by “non exit” or “managed exit” events
Focus on established and/or contract underpinned enterprises
Worked Example: Bromley Healthcare
Business Model Social Returns Financial Returns Investment Structure
Short term – better run community services (Nursing and therapy services) in Bromley, increasingly specialised services to avoid hospital admissions and speed discharge. Mid term: Health Management Model delivering health outcomes on a payment by results model.
Formed by 800 staff ‘spinning-out’ of the NHS to form a new community interest company (C.I.C.)
Community health, e.g.
Healing time of leg wounds reduced from 21 to 5 weeks (pilot)
Improved productivity + 15% (18 months) = more patient time
Do not attends 13% - 5%
c.£40M turnover
£10B market (UK market for community health care)
Significant improvement on 1% launch margin
Growth 100% ahead of budget
Variable competition
Assumed investment period of 5 years
Structured with a mix of debt and equity + structured exit
Majority of the return will be linked to the debt instrument
15
“Established social enterprises whose revenue streams are expected to be underpinned wholly or partially by delivery contracts”
Social Impact VCT: Offering to the Shareholder
1. Support the growth of socially-motivated companies which make a distinct positive contribution to improving UK society
2. Capital preservation and predictable cashflows due to focus on established companies and using debt-like, VCT-compliant structures
3. 30% income tax relief in year of investment, tax free dividends and capital gains*
4. Planned-exit – return of capital in years 6, 7 and 8**
5. Dividends planned in respect of the second financial year
*UK income tax payers, aged 18 or over, who acquire no more than £200,000 worth of VCT shares in a tax year. The UK tax treatment of VCTs is on a first in first out basis and therefore tax advice should be obtained before investors dispose of their shares. The income tax relief is given at the rate of 30% on the amount subscribed regardless of whether the qualifying investor is a higher rate or basic rate tax payer, provided that the relief is limited to the amount which reduces the qualifying investor’s income tax liability to nil.
***100p gross less 30p VCT income tax relief. IRR (Internal Rate of Return), i.e. annualised effective compounded return rate, calculated as the rate at which the net present value of costs of the investment equals the net present value of the benefits.
6. Annualised Return of 2-3 % post costs and before any tax benefit to an investor, translating into a target return of 118.5p (tax free) on every 70p net invested***
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**In many cases, it is expected that investment will be held for a 5 year period, structured with a mix of debt and equity, under which the majority of the return will be linked to the debt instrument, which will have a finite life to facilitate Social Impact VCT’s exit from the investment.
Investment Manager and Investment Adviser
FSE Fund Managers Limited(1)
Community Interest
Economic and social impact fund management
AuM £31.8M + Angel Investor Network
Experienced, equity and debt team
CEO: 30+ years funding experience
Head of Equity Funds: 15+ years experience in VC and PE investment
Head of Debt Funds: 20+ years experience in SME lending
Proactive investeemanagement/ support
“Hands on” due diligence and monitoring
Mentor, Coaching and NXD support
Follow on investment: 204 investees raised £116M+additional funding
Accelerator Fund
£14.6m + invested via 173 loans
10% return on investments (pre
overheads, post provisions) via current yield only
17
Social Finance Limited(1)
Not-for-profit
Corporate finance advisorImprove access to capital for those driving social change
Social Impact Measurement, monitoring and reporting
Design and delivery of Social Impact Bonds
1st Social Impact Bond (SIB) in September 2010 that funds
interventions to reduce reoffending among short sentence offenders from HMP PeterboroughNow 4 SIBs under management
Capital Raising
£10 million (2010-2012)
Private equity
Robin Black, 27-year career building and managing entrepreneurial businesses
Social enterprise network
Structuring expertise Understanding of socially-motivated companies’ sensitivity around external capital
(1) The FSE Group’s subsidiary FSE Fund Managers is authorised and regulated by the Financial Services Authority. FSA No. 458820Social Finance is authorised and regulated by the Financial Services Authority. FSA No: 497568.
Independent Investment Committee and separate VCT Board
Why Invest?
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•Become a lead investor in this new, growing and exciting market
•Provide capital for successful social entrepreneurs who make a real difference in addressing social issues
•Receive potential projected returns of 2-3% over the life of the VCT, an up-front 30% tax break and tax free dividends*
•Social Impact VCT will be managed by a leading social impact investment management team, with breadth of experience and excellent track record. The team combines investment on commercial principles with in-depth understanding of social impact
Social Impact VCT is an investment to be proud of.
* Assuming £20m capital raise and subject to eligibility
Further Information
19
Social Impact VCT website:
www.socialimpactvct.co.uk
Further questions, please contact:
Social Finance Ltd131-151 Great Titchfield StreetLondon W1W 5BB
Tel 0207 667 6370
Marechale Capital Plc3rd FloorNew Broad Street House35 New Broad StreetLondon EC2M 1NH
Tel 020 7628 5582
Social Finance is authorised and regulated by the Financial Services Authority. FSA No: 497568. The FSE Group’s subsidiary FSE Fund Managers is authorised and regulated by the Financial Services Authority. FSA No. 458820
Disclaimer
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This document comprises the presentation of Social Impact VCT Plc (the "Company") concerning the proposed admission to trading on the official list of the London Stock Exchange plc and to trading on the main market of the London Stock Exchange plc. This document is being solely issued to and directed at (a) persons who have professional experience in matters relating to investments and who are investment professionals as specified in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotions Order”); and (b) persons certified by an authorised person as sophisticated investors within the meaning of Article 50 of the Financial Promotions Order (but for the avoidance of doubt not those who are self-certified within the meaning of Article 50A of that Order).This document is exempt from the general restriction on the communication of invitations or inducements to enter into investment activity and has therefore not been approved by an authorised person, as would otherwise be required by section 21 of the Financial Services and Markets Act 2000. Any investment to which this document relates is available to (and any investment activity to which it relates will be engaged with) only those persons described in (a) or (b) above. Persons who do not fall within the above categories of investor should not take any action nor rely upon this document, but should return it immediately to Social Finance (“Investment Adviser”), 131-151 Great Titchfield Street, London W1W 5BB.
It is a condition of your receiving this document that (i) you fall within, and you warrant to the Company that you fall within, one of the categories of person described in (a) and (b) above; and (ii) if you fall within category (b) above, it is a condition of your receiving this document that you warrant to the Company that: (aa) you are a person who has a current sophisticated investor certificate, signed by an authorised person and dated no earlier than 36 months preceding the date of receipt of this document, confirming that, in the opinion of such person, you are sufficiently knowledgeable to understand the risks associated with an investment in an main market quoted company; and (bb) that within the last 12 months you have signed a statement in the terms set out in Article 50(1)(b) of the Financial Promotions Order. If you are uncertain with regards to your eligibility you should seek independent professional advice in this regard.
This document is for informational purposes only and does not constitute nor forms any part of any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any shares in the Company nor shall they or any part of them, or the fact of their distribution, form the basis of, or be relied on in connection with, any contract with the Company relating to any securities. Any decision regarding any proposed subscription or purchase of shares in the Company must be made solely on the basis of the information contained in the prospectus to be issued by the Company (the “Prospectus”). This document is not intended to be distributed or passed on, directly or indirectly, or to any other class of persons. It is being supplied to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any other purpose. Recipients of this document who intend to apply to subscribe or purchase ordinary shares in the Company following the publication of the Prospectus in final form relating to the Company are reminded that any such application may only be made on the basis of the information contained in such document which may be different from the information contained in this document.
No reliance may be placed for any purpose whatsoever on the information contained in this document, nor on its completeness. Any reliance on this communication could potentially expose you to a significant risk of losing all of the property invested by you or the incurring by you of additional liability. No representation or warranty, express or implied, is given by the Company, its directors or employees, or their respective professional advisers as to the accuracy, fairness, sufficiency or completeness of the information, opinions or beliefs contained in this document. Save in the case of fraud, no liability is accepted for any loss, cost or damage suffered or incurred as a result of the reliance on such information, opinions or beliefs. Recipients of this document should conduct their own investigation, evaluation and analysis of the business, data and property described in this document.
If you are in any doubt about the investment to which this document relates, you should consult a person authorised by the Financial Services Authority who specialises in advising on securities of the kind described in this document. Neither this document, nor any copy of it, may be taken or transmitted into the United States, Canada, Australia, the Republic of Ireland, the Republic of South Africa or Japan or into any jurisdiction where it would be unlawful to do so. Any failure to comply with this restriction may constitute a violation of relevant local securities laws.
Social Finance is authorised and regulated by the Financial Services Authority. FSA No: 497568. The FSE Group’s subsidiary FSE Fund Managers is authorised and regulated by the Financial Services Authority. FSA No. 458820
Disclaimer (cont.)
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Venture Capital Trusts (VCTs) were introduced by the UK Government in 1995 to encourage individuals to invest in smaller UK companies. The Government achieved this by offering VCT investors a series of tax benefits. The total invested in VCTs between 1995 and 2011 was more than £4.2 billion.
The Company is structured as a VCT to allow qualifying investors to take advantage of substantial tax benefits, including 30% income tax relief on the amount invested. The income tax relief means that taxpayers should benefit from a £3,000 reduction in their tax bill for every £10,000 invested, provided that the Ordinary Shares are held for a period of five years. In addition, qualifying investors should benefit from dividends paid by the Company being tax free and no capital gains tax on a disposal of Ordinary Shares. This is only a brief summary of the UK tax position for investors in VCTs and is based on the Company’s understanding of current law and practice. Investors should seek independent tax advice.
Key points to remember about VCTs: •VCTs invest in unquoted shares including new shares of privately owned companies, and new shares of companies that are traded on the Alternative Investment Market (AIM) and PLUS Market. •VCTs are complex and may be higher risk than conventional investment companies. They should be viewed as long-term investments. •Though VCTs offer generous tax benefits, you should not invest in a VCT simply for the tax benefits (also to obtain tax benefits investment should be held for a number of years). •It can be difficult to sell VCT shares on the secondary market, although some VCTs offer a ‘buy-back’ facility. •Past or simulated performance may not be a reliable indicator towards future performance.•As with any equity investment, returns are not guaranteed and you may get back less than you invest or nothing at all in extreme cases. •If you are unsure whether VCTs are suitable for you, you should take professional advice.
Social Finance is authorised and regulated by the Financial Services Authority. FSA No: 497568. The FSE Group’s subsidiary FSE Fund Managers is authorised and regulated by the Financial Services Authority. FSA No. 458820