SOCIAL VENTURE

FUND BUILDING SOCIAL

ENTERPRISES AT SCALE

THE OPPORTUNITYWorking on the ground in more than 40 developing countries, Mercy Corps teams have special insight into local behaviors, systems and attitudes. When that local knowledge is combined with a global understanding of development, technology and business, we are able to identify social enterprise opportunities that address the market gaps we observe, and ultimately improve people’s lives in an enduring way. We believe this approach will make life better for millions of people living in extreme poverty.

But here is the problem: the funding mechanism for incubating and developing innovative ideas is inadequate. Traditional grant funding, which generally underwrites anti-poverty work in the developing world, is largely risk-averse, and rarely promotes the flexibility and experimentation required to test new business models.

The nascent class of impact investors is better suited to high-risk social ventures than traditional donors, but few impact investing funds support the earliest stage of social enterprises, where risks are higher and rewards lower than pure for-profit ventures.

As a result, there is a financing gap — commonly termed the “pioneer gap” — that dampens innovation and inhibits the number of social enterprises that mature to the point of attracting private investment. The Mercy Corps Social Venture Fund bridges this gap for Mercy Corps’ highest-potential social enterprises.

FUND STRATEGY The Mercy Corps Social Venture Fund provides early-stage grant financing to build businesses and drive them towards commercial viability and follow-on

investment. The nature of early-stage investment calls for minimal financial returns to the Fund, all of which are invested back into the Fund, with a significantly higher social return on investment than traditional grant-based approaches. Social impact is critical, and we define specific social impact targets for each enterprise.

THE MERCY CORPS ADVANTAGE Businesses built in local markets. Mercy Corps is made up of about 4,000 team members, 93 percent of whom are local to the places where they work. Our people in the local markets are well-placed to identify business ideas that address the problems they encounter every day. With the support of our Social Ventures (SV) team and outside advisors, the most promising of those ideas are developed and built into businesses.

A unique blend of capital. Social enterprises need a blend of philanthropic and investor capital to learn, adapt and grow. We leverage the traditional grant capital at the center of Mercy Corps’ business model, introduce more risk-seeking philanthropic capital through the Mercy Corps Social Venture Fund and ultimately connect our most promising enterprises with investors.

Targeted expertise for growth. Entrepreneurs are paired with expert members from the Mercy Corps Social Ventures team and outside advisors to support pilot, testing and scaling.

Entrepreneurs receive deep expert support from members of the SV team and outside advisors to develop business plans, design products/services and build teams.

FUNDING GOAL: Raise $4m in private support by the end of 2015 and $10m by 2018.

FUND STRATEGY: Create and grow early stage social businesses conceived by Mercy Corps field teams and their partners.

MERCY CORPS SOCIAL VENTURE FUND FUND OBJECTIVE: Build scalable, self-sustaining businesses that deliver social benefit to millions of people in the developing world, demonstrating a new approach to global development.

FUND STRUCTUREThe Fund, which is capitalized by charitable donations, is invested in Mercy Corps’ highest-potential ventures, those that are able to demonstrate strong potential for financial sustainability, social impact, scale and innovation.

FUNDING SUPPORTS VENTURES AT THREE EARLY STAGES:

IDEA/DISCOVERY: This market research phase allows ideas with the most promise to further develop and define a stronger value proposition with assistance from the Social Venture team.

ASSESS: This proof-of-concept phase develops opportunities that have strong potential but require a limited amount of capital to validate key business themes, such as an improved business plan, appropriate price points or partner strategy.

PROVE: This early acceleration phase invests larger amounts of capital and business assistance to deploy a full-scale pilot and build businesses towards revenue, proven models and investment-readiness. This is analogous to a seed round.

THE SOCIAL VENTURES PIPELINE

This graphic illustrates the four stages of enterprise at Mercy Corps.

Case Study:

MiCRODiane Johnson, one of Mercy Corps’ most seasoned disaster responders, was on the ground soon after the earthquake in Haiti in 2010. She realized that the earthquake damage was just the beginning: poverty, large-scale deforestation and the increasing frequency of tropical storms would lead to more frequent catastrophes. She saw the value of a sustainable, market-driven way to address this chronic risk. Several months later, Mercy Corps, along with the local microfinance institution Fonkoze and the global reinsurer Swiss Re, launched MiCRO, a natural catastrophe micro-insurance company. Since its launch, MiCRO has helped more than 65,000 policyholders bounce back from more than a dozen disasters, including Hurricane Sandy and Tropical Storm Isaac, and paid out nearly $9 million to people who would otherwise have been starting over from scratch. MiCRO is now expanding beyond Haiti and solidifying its business strategy at a greater scale. The company aims to add hundreds of thousands of clients over the next five years and emerge with the first global insurance product that can sustainably mitigate natural disaster losses faced by the poor in Africa, Asia, and Latin America.

Lindsay Murphy/Mercy Corps

IDEA/DISCOVERY≈100

ASSESS≈10

3-6 months

< $100k =market validation, prototype

PROVE≈3

6-18 months

< $500K + match =full scale pilot

SCALE≈1

> $1M =external investor funding

< $5k - 10k =research and business idea validation

PARTNERS We are looking for partners who are interested in employing commercial strategies to reduce global poverty.

Partners will:

• Be passionate about the prospect of fighting poverty through business ventures.

• Anticipate social return, not financial return, on investment.

• Recognize the financial leverage of their philanthropic support, which will catalyze businesses to receive follow-on funding from traditional investors.

• View the fund as an investment into a portfolio of initiatives to diversify opportunities for significant social returns.

• Have the opportunity to provide business, mentoring or technical support to our entrepreneurs.

• Believe the traditional grant-based model is limited and want to play a role in transforming international development.

Partners will receive:

• Quarterly updates on Mercy Corps’ social enterprises.

• Annual analysis of the social and financial return of the Fund.

• The opportunity to advise Mercy Corps leadership and entrepreneurs.

• A Social Venture Fund Advisory Board position at giving commitments above $100,000.

Investments in the Mercy Corps Social Venture Fund are charitable donations that are tax-deductible to the extent allowed by US law.

MANAGEMENT TEAMThe Social Venture Fund is led and managed by Mercy Corps’ experienced Social Ventures team. SV team members are seasoned entrepreneurs who bring to the table a wealth of expertise in business, finance, technology, product design and consumer insight for building scalable enterprises in emerging market contexts.

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CONTACTELIZABETH WILLETTDirector of Development, Social Venture Fund ewillet@dc.mercycorps.org

ABOUT MERCY CORPSMercy Corps is a leading global humanitarian agency saving and improving lives in the world’s toughest places. With a network of experienced professionals in more than 40 countries, we partner with local communities to put bold ideas into action to help people recover, overcome hardship and build better lives. Now, and for the future.

45 SW Ankeny StreetPortland, Oregon 97204

888.842.0842mercycorps.org