social enterprise and investment
TRANSCRIPT
SOCIAL ENTERPRISE & INVESTMENT
Are you a social enterprise ?
© FSE C.I.C. 2014
This document and its contents remain the exclusive property of FSE C.I.C. and must not be circulated, replicated or utilised by other parties
unless with the prior written consent of FSE C.I.C.
The FSE Group
Are you a “Social Enterprise” ?
Definition ?…..
An organisation that applies commercial strategies to maximize improvements in human and
environmental well-being, rather than maximizing profits for external shareholders. [Wikipedia]
Social enterprises are businesses that trade to tackle social problems, improve communities,
people’s life chances, or the environment.
They make their money from selling goods and services in the open market….. but they
reinvest their profits back into the business or the local community….
And so when they profit, society profits
[SEUK : National body for Social Enterprises]
A charity or community interest company; or an organisation which has provisions in its constitution
which ensure that it distributes less than 50 per cent of its profit to shareholders, states that it is a
body carrying out activities for the benefit of the community and has clauses that require it to pass on
its assets to another social enterprise if it dissolves or winds up. [DoH Healthwatch extract]
A social enterprise is a business that has both social and commercial goals. What makes it different
from other enterprises is that it places a firm emphasis on tackling social problems. This positive
impact is as important to its business objective as any financial bottom line. [ClearlySo]
Are you a social enterprise ?
Legal Structure & Regulation ?…..
“Conventional”
Social Purpose
and/or Ethical
Social
Objective
Social
Regulation
Charitable
Registered Charity or Charitable Incorporated Organisation
Community Interest Company “C.I.C.” (can be CLS or CLG)
Indust.&Prov. Society – Benefit of Society “IPS BenCom”
Operated primarily for social impact : overseen by regulator
Registered Charity : Typically Trust or CLG
(Trading subsidiary operations alongside charitable activities)
CLS or Company Limited by Guarantee “CLG”
Indust.&Prov. Society – CoOperative “IPS CoOp”
Activity designed around desire to achieve a social impact
Social objectives enshrined within articles / constitutional docs
Company Limited by Shares “CLS”
Activity creates social impact or subject to ethical guiding principles
Standard constitutional docs or general ethical/social reference
Company Limited by Shares “CLS”
No specific social ambition or objective
Social impact (if any) incidental &/or not embedded
*S.I.T.R. Relief*
*S.I.T.R. Relief*
Are you a social enterprise ?
What REALLY makes a good social enterprise?…..
[A personal view]
CLEAR SOCIAL MOTIVATION : Why are you “in business” ?
Clear objective to address a social challenge : Problem <> Beneficiary Group <> Solution
“Theory of Change” : What social problem are you seeking to address ?
Social Objectives reflected in constitutional documentation : appropriate governance
“EXTRA MILE” : What do you do that a “pure profit” business would not ?
Who do you help : “Easy wins” or “reach out” to those most disadvantaged ?
Inclusivity : How accessible are your products or services ? Beneficiary engagement ?
Activities aligned to meeting the core social objective
“SOCIAL REINVESTMENT” : How do you apply profits / surplus cashflows ?
Profits retained to build resilience or fund expansion or reinvested into social purpose
Responsible remuneration (and dividend) policies : ideally aligned to social outcomes achieved
PROFITABLE / SUSTAINABLE : Is your business model viable ?
Trading activity viable in own right : selling products/services which are valued
Not reliant on grant or donation income
Financially stable / resilient : “Turtle” not a “wasp”
Example : Building Lives Training Academies C.I.C.
Construction Training & Apprenticeships : disadvantaged individuals & areas
CLEAR SOCIAL MOTIVATION : Why are you “in business” ?
Objective : Address multi-generation unemployment in deprived boroughs (London initially)
“Theory of Change” : Training-apprenticeship-employment : helping the “hard to reach”
Community Interest Company : socially regulated ; charity being established alongside
“EXTRA MILE” : What do you do that a “pure profit” business would not ?
Target individuals who do not have qualifications or access to usual college programmes
Inclusivity : 30% Homeless, 40% Ex-Offenders / 10% Female, 40% Black & Minority Ethnic
High success rates for individuals completing programme + maintaining employment
“SOCIAL REINVESTMENT” : How do you apply profits / surplus cashflows ?
Maintain lower ‘apprenticeship officers per apprentice’ ratio – reflects extra work involved
C.I.C. asset-lock + profits being reinvested into business
PROFITABLE / SUSTAINABLE : Viable business model
Each academy generates income per individual helped : SFA, CITB etc
Each academy generates profit to contribute to central resource/overhead
Business model is profitable and sustainable : no grant or donor reliance
What is “Social Investment” ?
Investment = requirement to pay back your investors plus a risk premium…..
“Conventional”
Investment
Ethical
Investment
Social
Investment
Grant/Donation
Social investment is the use of repayable finance…….to achieve a social as well as
a financial return. [Big Society Capital]
Positive theme : Objective = 100% social [no repayment]
Typically linked to special social theme or target beneficiary group
Inherent measuring + regular reporting of social outcomes
Positive screen : Objective = mix of financial + social return
Invest specifically to achieve desired social objectives
Inherent measuring + regular reporting of social outcomes
Negative Screen : Objective typically still 100% financial
Avoid investments which do not meet social/ethical thresholds
No specific reporting of of social outcomes
Purely commercial screen : Objective = 100% financial
No specific social or ethical considerations
No reporting of social outcomes
*NOT investment*
Social Investment : Case Study (FSE Social Impact Accelerator)
FUNDING STRUCTURE FUNDING TERMS FINANCIAL RETURN
FSE SOCIAL IMPACT
ACCELERATOR LOAN
£300,000
Repayment : 3 years : Ca. 10% p/a return
(partly via exit fee)
SHAREHOLDER LOAN
£100,000
Repayment : Flexible (post FSE loan)
(roll-up)
CASH-GENERATION
£100,000
Recycling of surplus trading cashflow into
further new site openings Yrs 3-4
n/a [Profit growth]
SOCIAL RETURN
Breadth/Scale : No of full apprenticeship students since inception : 290 (H1 Yr1) rising to 1,150 (H2 Yr3)
Depth/Extra Mile : High % from ‘hard to reach’ groups : Homeless, Ex-offenders, BAME
Sustainability : % of students still in employment a) > 6mths b) > 12mths post graduation
ENTERPRISE BENEFIT
Step-change in scale : Increased resilience / critical mass achieved
Step-change in profitability : Turnover x4, Break-even to £2m+ Op.Profit
Step-change in social and economic impact : Direct + Indirect job creation
Acceleration of growth + resilience + impact
What social investment is available ?
Supply of finance is expanding……select best match : product + vision
LOANS (Secured) LOANS (Unsecured) EQUITY
All legal structures All legal structures Companies ltd by shares (CLS)
Ind & Prov. Societies
Need hard asset cover
Need profits / cashflow
Need strong business plan
Need profits / cashflow
Need strong business plan
Need capital gain
5-20 years typically 0-7 years typically No defined exit
Security-based Lenders :
Traditional Banks
Social Banks (Charity Bank,
Triodos, Unity Trust, Co-Op)
Some foundations
Specialist cashflow-based
Funds :
FSE Social Impact
Accelerator
Big Issue Invest
S.A.S.C.
Key Fund
Community Development
Finance Institutions (CDFIs)
Specialist Funds
Impact Ventures
Bridges
Traditional Equity Investors
VC / PE Funds
EIS/VCT
Angel Investors
Crowdfunding
Community Share Issues
Charitable Trusts
What support is available ?
Helps is out there…..but not well signposted
INVESTMENT READINESS
Big Potential Fund : Information, Diagnostics + Grants for support to become investment ready
Investment & Contact Readiness Fund : Grants for support to be contract +/or investment ready
SOCIAL INCUBATORS
Big Lottery Fund / Cabinet Office backed : 10 incubators across the UK
Intensive support for very early stage social ventures : some theme specific (eg education)
Examples : Big Issue Invest CSV, The Young Academy, Health Social Innovators
EARLY-STAGE GRANT PROVIDERS
Various : e.g. UnLtd : Young Foundation, Community Foundation Network members
Local Govt / Local Enterprise Partnerships (LEPs)
Charitable Foundations : e.g. Esmee Fairbairn Foundation, Joseph Rowntree Foundation
BIG Lottery Fund : Website includes details of all current active programmes
MENTORING / SUPPORT PROVIDERS
Specific e.g. Social Business Trust ; Impetus Trust ; Pilotlight, School for Social Entrepreneurs
Trade organisations : Social Enterprise UK, Social Impact Investors Group
General : Growth Accelerator (Govt-sponsored), LEP schemes
Useful reference points
A few signposts……
The FSE Group : www.thefsegroup.com/social-impact-funding
Social Impact Accelerator : “Cashflow” loans £200k to £1,000k
Community Generation Fund : Loans for community renewable energy
Big Society Capital : www.bigsocietycapital.com/seeking-investment
Big Lottery Fund : www.biglotteryfund.org.uk/funding
Big Potential Fund : www.bigpotential.org.uk
Social Enterprise UK : www.socialenterprise.org.uk
School for Social Entrepreneurs : www.the-sse.org
Community Development Finance Association : www.cdfa.org.uk
CoOperative & Community Finance : www.coopfinance.coop
Discussion
THANK YOU
JEFF DOBER
Head of Social Impact Funds
The FSE Group
01276 608520
THE FSE GROUP
www.thefsegroup.com
Head Office
Riverside House
4 Meadows Business Park
Station Approach, Blackwater,
Camberley, Surrey, GU17 9AB
Ipswich Office
Unit 1 Basepoint Business Centre
70-72 The Havens, Ransomes Europark
Ipswich, IP3 9SJ
Innovative
Growth Funding & Support
Creating
Sustainable Social & Economic Impact
© FSE C.I.C. 2014
This document and its contents remain the exclusive property of FSE C.I.C. and must not be circulated, replicated or utilised by other parties
unless with the prior written consent of FSE C.I.C.
The FSE Group
Introduction to The FSE Group
Community Interest Company (C.I.C.) : Company Limited by Guarantee
Impact Funding Track Record : Lending / investing since 2004.
Social (Regulated social enterprise) and Economic (early-stage SME) focus
300+ loans / 19+ investments to date, in areas of “funding market gap”
Ca.£45million impact-return funds managed (social + public + private investors)
Blended Ethos : Combining social + economic + financial objectives
UK-wide reach : Pipeline and activity across the UK : Geographic-spread ambition
Experienced Team providing end to end service: Experienced, committed to sector
FCA-Authorisation : Regulated activity via sub. FSE Fund Managers Ltd
Social Enterprise with a long history of impact lending & support …..
……Addressing funding market gaps.
Social Enterprise : The FSE Group
Funding and support in areas of market gap…….
CLEAR SOCIAL MOTIVATION : Why are you “in business” ?
Objective : Provide funding & support to enterprises beyond traditional funder appetite
“Theory of Change” : Funding/support-growth-social/economic impact : measurable results
Community Interest Company : socially regulated ; CIC - CLG
“EXTRA MILE” : What do you do that a “pure profit” business would not ?
Target enterprises or projects which cannot fulfil all needs from traditional markets
Inclusivity : No expectation of asset-cover ; consider ambitious expansion plans
Low default / failure levels relative to risk of proposals supported
“SOCIAL REINVESTMENT” : How do you apply profits / surplus cashflows ?
Maintain lower ‘clients to fund manger’ ratio - reflects proactive relationship management
C.I.C. & CLG : mission & asset-lock : Profits being reinvested into mentoring & resilience
PROFITABLE / SUSTAINABLE : Viable business model
Each fund managed generates a fee per annum in excess of direct resource cost
Each fund generates profit to contribute to central resource/overhead
Business model is profitable and sustainable : no grant or donor reliance
Live
SOCIAL IMPACT ACCELERATOR
Extend access to capital for regulated social sector
Catalyse ability to scale / capacity build
COMMUNITY GENERATION FUND
Community Energy projects : disadvantaged
locations
Community legacy : community ownership +
recycling of profits into local social priorities
In Development / experimental
Impact Catalyst Fund
SITR Nominee Fund
• Early-stage enterprises ; local funding partners
The FSE Group - Social Impact Funding
SOCIAL IMPACT FUNDS
UK-WIDE
FSE Social Impact Accelerator
Expansion funding for ambitious social enterprises.....
‘Pure’ Social Sector Focus
Regulated social enterprises only : Registered charities, CICs & IPS Bencom
Clear social mission and success measurement
Agreed social KPIs monitored.
Capital to increase scale of impact : ‘Step change’ ambition
Loans : £200,000 to £1,000,000 per enterprise
Flexible repayment : bespoke to business plan : Typically 3-7 years
Funding to expand : Capacity building, activity roll-out, expansion, ‘gap funding’
Extend access to capital : “Cashflow lending”
Complementary + additional to traditional bank finance : standalone or 2nd ranking lender
Cashflow-led : No requirement for ‘hard’ asset security or historic balance sheet cover
‘Reach out’ : complex cases, work with enterprise at early planning stage
Sustainable loan pricing
Pricing linked to risk + flexibility required
Typically 8-12% overall return : possible partial-link to success
FSE Community Generation Fund
Creating local social impact from energy....
‘Community’ Focus
Community-ownership of renewable energy infrastructure
Clear social mission : reinvestment of surplus cash into local social priorities
Agreed social KPIs monitored.
Construction Loans : ‘Community Scale’ legacy ambition
Post-consent Loans : £25,000 to £500,000 : standalone or 2nd ranking lender
Flexible repayment : bespoke to project & social plan : Typically 5-7 years, back-ended
Site-based or building-based installations : or shared ownership (fair deal to community)
Development Loans : Preserve community ownership from outset
Pre-consent Loans : Up to £100,000
Contingent Repayment : Repayable + premium only if planning consents achieved
Disadvantaged locations preferred : Not wind-technology until further notice
Sustainable loan pricing
Construction Loans : Typically 8-10% : linked to risk + flexibility required
Development Loans : Success-Fees Typically 25-100% (<5% project cost)
Introduction to the FSE Social Impact Funds team
Grass-roots cashflow lending or relevant sector experience…..
Committed to impact....
Jeff Dober
Head of
Social Impact Funds
25+ years lending
experience across, Social,
SME & Acquisition Finance
sectors
Established FSE Social
Impact Funds division
ICRF Panel Member
Mark Bickford
Senior Fund Manager
Social Impact Accelerator
23 years lending experience
in SME & Acquisition Finance
Previous work for the High
Street Fund
Jon D’Este-Hoare
Fund Manager
Community Generation Fund
Consultancy track record on
growth and development of
community carbon reduction
groups and development of
funding mechanisms for small-
scale renewable energy.