WEBINAR

SOCIAL INVESTMENT

6 JULY 2015

INTRODUCTIONS

• Geetha RabindrakumarSocial Sector Leader, Big Society Capital

• Andrew O’BrienHead of Policy and Public Affairs,Charity Finance Group

• Lauren Bernard and Helen RidgwayTechnical support, NCVO

ABOUT THE WEBINAR

• 30 minute presentation

o 20 – social investment overview o 10 – social investment tax relief

• 15 minutes Q & APlease type your questions into the questions panel at any time (at the bottom of your webinar dashboard).

• Please complete the short follow-up survey upon exiting the webinar.

SOCIAL INVESTMENTAN OVERVIEW

Has your organisation taken on social investment or borrowed money?

POLL TIME…

Youth unemployment

Homelessness

Charities & social enterprises are dealing with some of the most challenging issues in the UK

Reoffending

Adoption

Ageing population

Financial exclusion

Social isolation Fragmented communities

Educational attainmentObesity

THE SOCIAL CHALLENGE

Social investment is the provision of finance to generate

social and financial returns

WHAT IS SOCIAL INVESTMENT?

PhilanthropySocial Return

InvestmentFinancial Return

Social InvestmentSocial & Financial Return

Social investment is not a grant – there is an expectation of

repayment of the finance, plus a return

WHAT IS SOCIAL INVESTMENT?

“The first ever charity retail bond: Mencap's property arm offers 4.4% interest to savers -

and you can sell it on”

“People as old as 6 and as young as 84 have raised funds, painted walls, built websites,

organised events, made butties….and encouraged others to come and use Bramley

Baths”

WHY SOCIAL INVESTMENT?

SECTOR

∞Recycle money available Attract additional funding

~ Be more flexible than grants

Enable enterprise to direct grant income to where most needed

Bring business discipline (effectiveness)

Bring wider support and engagement with your mission

Bring involvement/expertise from motivated investors

Increase your impact!!

INDIVIDUALCHARITY

Social Investment can benefit the wider sector, as well as the individual charity taking on the investment.

EARLY CONSIDERATIONS• Purchasing/refurbishing assets• Working capital (e.g. to support payments by results

contract)• Bridging finance (e.g. confirmed grant) • Expand existing activities/ deliver new services

• Government contract

• Rental income

• Membership fees

• Donations

Organisation Activities Outputs Outcomes Impact

WHAT DO YOU NEED INVESTMENT FOR?

IS THERE AN INCOME STREAM?

WHAT SOCIAL IMPACT ARE YOU SEEKING TO CREATE?

TYPES OF INVESTMENTDEBT

What type of finance is this? How can it help?

• A loan given against the security of an asset, such as property or equipment (at a lower rate than unsecured debt)

• Funds working capital, growth or specific projects• Typically more suitable for small and medium sized charities and SSOs

SECURED LOANS

OVERVIEW

Considerations

• Failure to replay loan can mean repossession of the asset

• Could a mainstream lender more suitable secured finance than a social investor?

SOCIAL BANKS

Charity BankCapitalised with £14.5 from Big Society Capital between 2014 – 2016.

Secured lending of £50k-£2m

Triodos Bank

Secured lending of between £25,000 and £15 million per project

Unity Trust Bank

Partnership with Big Issue Invest to offer 100% secure loan finance for property deposits

Ecology Building Society

Mostly mortgages with a minimum rate of 4.9% at up to 80% of property value

Secured loans from £50k to £6 million

What type of finance is this? How can it help?

• Short term bridging support pending a specific repayment event (such as an identified inward investment or cash-receipt or potentially by exception, fund-raising event).

• Working capital• Development capital for investing in growth, capacity and scale (e.g., deposits for asset

purchase, product development)

UNSECURED LOANS

OVERVIEWConsiderations

• Risk appetite – higher rate than secured loans

• Not suitable for early stage ventures/ businesses

• Profile and predictability of repayments

£250,000 – 3M size flexible loans Annual interest rates 6 – 12%

Investors:

Social Impact Accelerator (FSE)

UNSECURED LOAN FUNDS

Third Sector Loan Fund (SASC)

£250,000 – 1M size flexible loansRates higher than senior lender finance

Investors:

CROWDFUNDING

SITR provides VCSEs with tax relief on lowest forms of unsecured debt.

Peer to business platformsOrganisations get investment directly from individuals

Examples:

Debt – based platformsIndividual buy security, normally in the form of a bond (unsecured loan)

Examples:

SMALLER UNSECURED LOANS

CAF VenturesomeLoans £25k-£250k:

Keyfund (North and Midlands): Loans up to £300k

Local community foundations

Availability of small loans <£150k will be increased in future

Streetleague - Unsecured loan £125k for working capital from Venturesome

TYPES OF INVESTMENTEQUITY

What type of finance is this? How can it help?• Equity finance is less commonly used than debt finance. Some VCSEs can issue shares, and

co-operatives can raise finance by selling shares to members.• Equity can provide genuine risk capital: for very early stage start-ups to risk capital for social

enterprises with proven business models that have the potential to scale• “Quasi – equity” for charities is debt with variable repayments e.g. linked to revenue• Often comes with more than just money – support, networks, advice

EQUITY

OVERVIEWConsiderations

VENTURE FUNDS

SOCIAL ANGELS

NESTA Impact VenturesReceived £8m from Big Society Capital

Pre-profitability equity investment in SSOs tackling youth unemployment, elderly care and community exclusion

LGT Impact VenturesReceived £10m from Big Society Capital

Growth/ scale equity capital in SEs with proven business models

UnLtd Big Venture Challenge offered social start-ups funding matched by social angel investors

ClearlySo angel networkTypical equity raises between £50,000 and £250,000 deal

• Do you want to give up a proportion of control over your business?

• Are you going to (or do you want to) make enough profit to give shareholders a return on their investment?

• Do you want to share risks?

COMMUNITY SHARES

Individuals investing in innovative community businesses

Ecodynamic – local investment for community benefit

TYPES OF INVESTMENTOTHER

SOCIAL IMPACT BOND IN HEALTH

WAYS TO WELLNESS

Lead delivery charity

SIB SPV

Investment into SIB programme

Payments triggered by outcomes

represent a % of cost savings

InvestorsNewcastle West

Clinical Commissioning

Group (CCG)

Social prescribing to those with an expressed

willingness/ability to change.

Payment metric: Improved employment and reduced health care costs

1800 patients improve self-care and positive

behaviour change leading to increased

likelihood of returning to work and reduced burden on health

provision

Commissioner: Newcastle West Clinical Commissioning Group (CCG)

Investors: Bridges Social Impact Bond Fund (£1.65m)

Delivery charity is VONNE

Initial investment in Ways to Wellness (W2W), a social impact bond (SIB) formed to fund the provision of social prescribing to people with long term conditions ('LTCs')in Newcastle West. W2W is aimed at c.1800 patients per year, aged 40 - 75 living in the area, who have one or more specified LTCs who have expressed willingness/ability to change. This SIB is commissioned through a 7 year contract.

SOCIAL PROPERTY FUND

ST MUNGO’S BROADWAYResonance

•There are over 6,500 people sleeping rough in London and 42,430 households living in temporary accommodation.

•There is also a lack of suitable transitional accommodation for people at risk of or experiencing homelessness.

•St Mungo’s Broadway set up Real Lettings to provide affordable accommodation and support for up to two years to homeless families and individuals.

•Real Lettings leases property from the Real Lettings Property Fund for a five year term. Rental income from the properties which is largely from housing benefit is used to repay investors.

•The Fund aims to help up to 600 people by providing around 220 properties over seven years.

WHAT WE’VE BEEN DOING AT BIG SOCIETY CAPITAL

HSBCBarclaysLloyds

TSB RBS

Dormant Accounts

Other Investors

SocialFinance

Providers(‘intermediaries’)

SocialSector

Organisations

Market Champion

Investor

£600m

• Improving understanding of social investment• Creating a better environment for social investment• Encouraging more investors to become social

investors• Increasing awareness among charities and social

enterprises that might benefit from social investment

• £158 million of signed investment so far• General and specialist funds: loans, equity, regional,

social issue, community• Social Impact Bonds• Social Banks• Charity Bonds• Supporting market infrastructure

As an investorAs a market champion

Do you think social investment could be relevant to your organisation?

POLL TIME…

SOCIAL INVESTMENTTAX RELIEF

How interested in social investment tax relief are you currently?

POLL TIME…

WHAT IS SOCIAL INVESTMENT TAX RELIEF?

• Social Investment Tax Relief (SITR) is a tax relief that enables individuals to reduce their tax bill by investing in charities, Community Interest Companies (CICs), community benefit societies (Bencoms) and Social Impact Bonds.

• Investors can choose to claim up to 30% relief against their income tax bill or to defer capital gains tax. Gains on investments made with SITR are exempt from capital gains tax after three years.

WHAT TYPES OF INVESTMENTS ARE ELIGIBLE FOR SITR?

Source: BSC: BSC

HOW DOES SITR WORK?

• For example, Margaret provides £100,000 in loans for The Really Environmental Charity to develop a recycling service for a local community. Margaret is now able to get £30,000 in income tax relief (30% of £100,000). Her income tax liability was £45,000 – but because of her SITR relief, she now only has to pay £15,000 (£45,000 minus £30,000).

• The Really Environmental Charity now has £100,000 to invest in its recycling services for the local community over the next 28 months – potentially at a lower rate of interest, because Margaret has already received £30,000 in tax relief for making the loan.

THINGS TO KEEP IN MIND• SITR is a tax relief aimed specifically at charities and CICs, this means that it

counts towards ‘state aid’.

• When calculating the amount that you can raise through SITR, you must take away any ‘state aid’ applicable grants from public sector organisations (or publicly funded institutions such as the Big Lottery Fund.

• For example, if your organisation has received a £50,000 grant from Public Body A which is not exempted from state aid rules, then you must reduce the amount you can receive through SITR by £50,000.

• Remember to keep HMRC informed about any changes.

• Once investment into your organisation has been approved for SITR by HMRC, you must inform HMRC if there are any changes to your organisation or the investment that may affect your eligibility within 60 days.

CHALLENGES

• Remember this is a new tax relief and it will take time to increase public awareness – so learn the rules and be prepared to explain the relief to multiple investors!

• Social investment is not a ‘quick’ process and this tax relief will not replace the need to come up with robust business plans and sound analysis of risks.

• Make sure that you have a compliance system in place to monitor the investment. This will ensure that can provide information to HMRC or investors on request about how their investment has been used and that it has met the rules.

CASE STUDY

• A community based/supporter owned football club, it is trying to raise £200,000 from supporters to build its new ground.

• It is offering an optional rate of interest (2%) and is promising full repayment within four years.

• Marketed as better than ISA or savings & providing a social return to supporters through 2% interest + 30% reduction in tax liability.

FC UNITED OF MANCHESTER

Is social investment tax relief something you would now consider using?

POLL TIME…

BIG SOCIETY CAPITAL

If you:

• have raised investment using SITR

• are in the process of doing so

• are considering raising finance using SITR within the next 12 months

and would like to know more about additional advice and focused PR support available to the first charities and social enterprises to use SITR, please do sign up for more information: http://bit.ly/1JQdIM9

FIRST TO THIRTY

Q&A

Type your questions into the questions panel on the webinar dashboard

THANK YOU

Geetha Rabindrakumar@BigSocietyCapgrabindrakumar@bigsocietycapital.com

Andrew O’Brien@CFG_OBrienandrew.o'brien@cfg.org.uk

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