Funding Your Social Enterprise: Approaches & Resources for

Nonprofits

A Seriously Good WebinarJuly 8, 2010

Zerodivide.org - @ZeroDivideOrg - facebook.com/ZeroDivideorg

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Straw Poll – Who’s on the call?

Are you a…

• Social enterprise/social entrepreneur

• NPO thinking about a new enterprise

• Social enterprise consultant

• Funder/Investor

• Other

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Straw Poll #2 – What do you most want to hear about?

 

• Community bank loans (CDFI)

• Program Related Investments (PRI)

• Mission Related Investments (MRI)

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FUNDING SPECTRUM OF SOCIAL ENTERPRISES

Source: Virtue Ventures LLC.

 Traditional nonprofit

Social enterprises For-profit

Capital Grants and donations

Grants and below-market capital, no/low-interest

loans

Market-rate capital

Expected social return

High High None

Expected financial return

None Below market or none

Market rate

Sources of capital

Foundations, government grant

programs, bilateral and multilateral

lenders, individuals

Foundations, local government, CDFIs, PRIs, bilateral and

multilateral lenders, nonprofit social investors,

individuals

Traditional venture

capitalists, investment banks, other investment

assets, individual investors, stock

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Social equity investors Private equity investors

Traditional philanthropy

Venturephilanthropy

Community debt

financing

Community development

equity / venture capital

Angel investors /

social venturecapital

Socially responsible investment

funds

Traditional institutional

capital(e.g., banks,

mutual funds)

Source: Jed Emerson, based on the work of Shari Berenbach and Timothy Freundlich, 2000.

Spectrum of Investors

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ALTERNATIVE FINANCING

• Community Development Financial Institutions (CDFI)

– A CDFI is a specialized financial institution that works in market niches that are typically outside the areas served by traditional financial institutions.

– CDFIs are regulated under the U.S. Treasury through the CDFI Fund.

– Services include providing financial services, loans, and investments; offering training and technical assistance services; and promoting development efforts that enable individuals and communities to effectively use credit and capital.

For more information on CDFIs or to find a CDFI in your region, please visit the Coalition of Community Development Financial Institutions at

CDFI.Org

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TYPES OF LOANS Facility Loans Acquisition Construction, renovation and leasehold improvement Related soft costs, such as professional fees and permits Relocation costs

Working Capital Loans Bridging capital campaign receipts, grants, government contracts, and other receivables Lines of credit to support temporary cash flow needs Program expansion

Equipment Loans Office equipment and furniture Computer hardware and software HVAC and security systems Other program-and facility-related equipment

Growth Loans Expand programs Grow an earned income or social venture

•New Market Tax Credits

Loan Sizes NFF’S loans typically range from

$100,000 to $2 million Other CDFI’s offer both smaller

loans as well as larger loans up to $5 million

Rates Vary with type of loan and can

be fixed or variable.

Terms Can range from short term for

bridge financing up to 5-7 years for facility projects.

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PROGRAM RELATED INVESTMENTS (PRIs)

• Program-related investments (PRIs) are investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organizations or in commercial ventures for charitable purposes.

• Make Foundation funds available for charitable purposes (like grants)

• BUT

• Generally come back to the Foundation, with some interest – generally below market rates (unlike grants)

• AND

• Can never be made for the primary purpose of financial gain (unlike regular Foundation investments)

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FOR EXAMPLE?

•Construction loans…for charter schools, health clinics, affordable housing, child care centers, and other projects serving charitable purposes

•Business loans and investments…to start and expand companies that employ lower-skilled workers and strengthen underserved or distressed communities

•Short-term financing and working capital loans…to buy land for conservation before permanent funds are raised; to cover operating costs for a social service agency awaiting government payments

•Credit enhancement…to make mortgages to low-wealth homebuyers; to facilitate investment in community and sustainable development projects and organizations

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CALIFORNIA COMMUNITY FOUNDATION

•Purpose

Bridge loan for pre-construction of a major cultural facility

•Terms

Period – 6 months

Amount - $300,000; cumulatively - $1.025 million

Interest Rate – 3%

Results – Helped Children’s Museum of LA to secure $22.6 million of $50 million capital campaign

PRI to Children’s Museum of Los Angeles

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WHERE DO PRIs FIT IN?

Regular Investments

Social Investments

Program-related Investments

Grants

Primary purpose Financial gain Financial and social gain

Charitable benefit

Charitable benefit

Investment profile

Maximum risk-adjusted financial return

Usually at or near market return

Modest financial return; almost always below market

Zero financial return

Constraints “Jeopardizing investments” are subject to penalties

“Charitable purposes” must satisfy IRS requirements

For more information on which foundations make PRI’s, please visit www.primakers.org

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MISSION-RELATED INVESTMENT (MRI)

•The investment of a foundation's endowment assets in opportunities that align with its program goals. Some foundations have common under criticism for endowment investments in companies who are seen to cause the very problems their programs seek to remedy.

•Financial investment made with the intention of:

(1) Furthering a foundation’s strategic goals

(2) Obtaining a financial return (at or near market rate)

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MISSION-RELATED INVESTMENTS

• Loans• Senior• Subordinated• Loan funds• Line of credit

•Fixed income

• Bonds• Bond funds• Asset-backed securities

•Public equity

• Screened funds• Direct public equity

•Alternative assets• Direct private equity• Private equity funds• VC funds• Fund of funds• Buyout funds• Hedge funds• Real estate

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WHERE DO MRIs FIT IN?

Regular Investments

Social Investments

Program-related Investments

Grants

Primary purpose Financial gain Financial and social gain

Charitable benefit

Charitable benefit

Investment profile

Maximum risk-adjusted financial return

Usually at or near market return

Modest financial return; almost always below market

Zero financial return

Constraints “Jeopardizing investments” are subject to penalties

“Charitable purposes” must satisfy IRS requirements

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Straw Poll #3 – What do you most want to hear about?

 

• Foundation vs. non foundation funding

• Specific Fdn. funders

• What funders look for

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Straw Poll #4 – What do you most want to hear about?

•  Nonprofit IPO

• Capital campaign

• Other

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Founded: 1974

Mission: Opening doors to safety, dignity, hope and independence.

Vision: Everybody deserves a place to call home

Demographics: 14 housing and shelter programs in Marin County provide 441 beds to homeless children, women, and men, every single night.

Social Enterprises: Catering Business, Public Cooking School, Chocolate Truffles and other deli items, Event Space, Commercial Kitchen Rental

Annual Budget: $4.5 million

The cost of providing food, shelter, and support services is $28 for each person served, each night.

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Homeward Bound of Marin’s “Fresh Starts Catering” social enterprise offers workexperience and employment to students in its culinary job training programs

while catering a wide variety of events.

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The Key Room, a conference and dining space operated by Homeward Bound, allows businesses and community members to hold business workshops, team-building events,

weddings, and elegant dinners in this beautiful state-of-the-art location.

Was funded by a successful capital campaign – an alternative way to raise funds forsocial enterprise. Attracted many new foundation funders from out-of-county.

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An on-site public cooking school offers classes and lectures by culinary luminarieslike Chefs Michael Mina, Heidi Krahling, Joanne Weir and Rajat Parr.

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Halo Truffles provide another unique avenue to support our work.

Look for them in high-end markets and take a bite out of homelessness!

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In May 2007, Homeward Bound launched the first ever nonprofit IPO.

Warren Buffett was our inaugural shareholder.

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Over 1,000 shareholders, have purchased 31,940 shares, generating $1,022,080 …so far.

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Additional Innovative Approaches

• Enter business plan or other competition

• Partner with other SEs in similar space

• Pre-service purchase or discount

• Crowdsource

• Attach business plan to grant proposal

• Explore Hybrid models (L3C) or Co-op

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How to Fund Youth Media Marketers?

• 3 year old nonprofit social media consultancy

• Foundation funding soon to end

• 60% sustainable

• Business demand increasing

• Wanting to expand business and create satellite ventures

• Have franchise opportunities

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Contact info

• David Greco, Nonprofit Finance Fund (nonprofitfinancefund.org)Phone: 415-255-4849Email: sf@nffusa.org

• Laura Efurd, ZeroDivide (zerodivide.org) Phone: Phone: 415-773-0388Email: laura@zerodivide.org

• Paul Fordham, Homeward Bound (hbofm.org)Phone: 415-382-3363 ext.211 Email: pfordham@hbofm.org

• Paul Lamb, Man on a Mission Consulting (manonamission.biz)Phone: 510-815-6091Email: paul@manonamission.biz