venturesome – social purpose finance paul cheng investment manager, venturesome
TRANSCRIPT
Venturesome – social purpose finance
Paul Cheng
Investment Manager, Venturesome
2
Agenda
Introduction to Venturesome
Funding needs and financial mechanisms
Future challenges
Case studies
Venturesome: filling a funding gap
Charities are undercapitalised few charities are able to create a surplus that they can
transfer to their balance sheet funding is primarily available in the form of revenue
funding; there is very little capital investment available to charities
Our vision is that, by 2012, lack of access to capital is no longer a major barrier to charities achieving their social impact
Our track record
Since 2002, we have offered over £10m to 150 charities
Default rate is very low: <5% We are currently managing a fund of £8m In 2007, we were awarded Most Innovative
Charity at Britain’s Most Admired Charities awards We learn from our investment in charities, and
share this learning with the wider social investment market, encouraging a more efficient use of capital
The spectrum of venture capital involvementC
OM
ME
RC
IAL
D
RIV
ER
S SO
CIA
L /
PH
ILA
NT
HR
OP
IC
DR
IVE
RS
Commercial Investment in
Social / Environmenta
l Sectors
Community Development
Venture Capital
Social Enterprise
Investment / Social
Venture Capital
Venture Philanthropy /
Charitable Initiatives
VC / SocialSpecialist VC Social / VC Philanthropy Mainstream VC
Environmental
sustainability, CSR and SRI consideration
s for Mainstream VC Investors
The spectrum of venture capital involvementC
OM
ME
RC
IAL
D
RIV
ER
S SO
CIA
L /
PH
ILA
NT
HR
OP
IC
DR
IVE
RS
Commercial Investment in
Social / Environmenta
l Sectors
Community Development
Venture Capital
Social Enterprise
Investment / Social
Venture Capital
Venture Philanthropy /
Charitable Initiatives
VC / SocialSpecialist VC Social / VC Philanthropy Mainstream VC
Environmental
sustainability, CSR and SRI consideration
s for Mainstream VC Investors
Venturesome
Helping individual charities – what we offer
1. Working capital to cover cash flow fluctuations, e.g. when paid in arrears for services rendered. ‘Open’ working capital tides an organisation over before it has raised all the money it needs to meet its costs. ‘Closed’ working capital is used where the funding is already committed.
2. Development capital can be ‘hard’, for the resources needed to carry out operations (e.g. property, vehicles, equipment), or ‘soft’, to support growth and innovation (e.g. the development of a new product)
3. Pre-funding of fundraising, for example where an organisation is fundraising for a new building, and requires a bridging loan to enable it to proceed where it wishes to take advantage of a fixed contract price for building work
Main financial mechanisms used by Venturesome
Underwriting / standby facilities undertaking to provide financing for a particular project if
budgeted income does not materialise
Unsecured loans not taking security on the charity’s assets
Equity and quasi-equity the return the funder receives is linked to the financial success
of the venture
Matching financial mechanisms to funding needs
Matching financial mechanisms to funding needs
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
Standby Facility
Overdraft
Unsecured Loan
Patient Capital
Quasi-equity
Equity
Grant
Matching financial mechanisms to funding needs
LOW RISK
Hard DevelopmentCapital
Working Capital (closed)
Pre-funding Capital Fundraising
Working Capital (open)
Soft Development Capital
HIGH RISK
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
Standby Facility
Overdraft
Unsecured Loan
Patient Capital
Quasi-equity
Equity
Grant
Matching financial mechanisms to funding needs
LOW RISK
Hard DevelopmentCapital
Working Capital (closed)
Pre-funding Capital Fundraising
Working Capital (open)
Soft Development Capital
HIGH RISK
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
Standby Facility
Overdraft
Unsecured Loan
Patient Capital
Quasi-equity
Equity
Grant
Matching financial mechanisms to funding needs
LOW RISK
Hard DevelopmentCapital
Working Capital (closed)
Pre-funding Capital Fundraising
Working Capital (open)
Soft Development Capital
HIGH RISK
INCREASING SUPPLY LITTLE SUPPLY
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Secured loan
Standby Facility
Overdraft
Unsecured Loan
Patient Capital
Quasi-equity
Equity
Grant
14
Matching financial mechanisms to funding needs
Unsecured Loan
Overdraft
Quasi-equity
Equity
Grant
Pre-funding Capital Fundraising
Working Capital (open)
Soft Development Capital
Standby Facility
LOW RISK
HIGH RISK Hard
DevelopmentCapital
Appropriate Funding (correlation)
Patient Capital
Secured loan
Working Capital (closed)
LOW CHANCE OF REPAYMENT
HIGH CHANCE OF REPAYMENT
15
Who funds what?
Unsecured Loan
Overdraft
Quasi-equity
Equity
Grant
Pre-funding Capital
Fundraising
Working Capital (open)
Soft Development Capital
Standby Facility
LOW RISK HIGH RISK
Hard Development Capital
Increasing evidence of commercial finance available
Patient
Capital
Secured loan
Working Capital (closed)
LOW
CHANCE OF REPAYMENT
HIGH
CHANCE OF REPAYMENT
Need for further supply of capital and development of financial instruments
Charity or business?
Social enterprise
What is
“social enterprise”?
Model 1
“Cash Generator”
Model 2
“Trade off financial and social returns”
Model 3
“Lock-step”
The investor universe
+ 8%
The investor universe
+ 8%
Market-rate return
The investor universe
+ 8%0%
Market-rate return
The investor universe
+ 8%0%
Market-rate returnCapital-protected
The investor universe
- 100% + 8%0%
Capital-protected Market-rate return
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
- 15%
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
- 15%
?
Future challenges
Changing the grant-making mindset
Future challenges
Changing the grant-making mindset Creating a guarantee fund
Future challenges
Changing the grant-making mindset Creating a guarantee fund Using subordinated debt
Future challenges
Changing the grant-making mindset Creating a guarantee fund Using subordinated debt Creating a social stock exchange
Future challenges
Changing the grant-making mindset Creating a guarantee fund Using subordinated debt Creating a social stock exchange Doing social investment banking deals
Future challenges
Changing the grant-making mindset Creating a guarantee fund Using subordinated debt Creating a social stock exchange Doing social investment banking deals
The emergence of a new financial services industry around social enterprises
“Not everything that counts can be counted. And not everything that can be
counted, counts.”
Albert Einstein
Case studies – working capital
Mental Health Media (2006) low reserves but refocusing of activities required unrestricted funds to
meet expenditure open working capital needed standby facility of £50,000 remains undrawn as funds were raised as expected
Questscope (2004) grants from World Bank and EU up to 14 months late, resulting in
significant working capital problems closed working capital needed unsecured loan of £60,000 repaid in full once grant payment was received
Case studies – development capital
Women Like Us (2005) budget shortfall plus a cashflow difficulty arising from committed
funding being paid in arrears open working capital and soft development capital needed £25,000 standby facility and £25,000 unsecured loan £20,000 drawn down, being repaid monthly Facility extended in 2007; £50,000 standby facility offered
Charity Technology Trust (2007) transitioning from grant-dependency to a more commercial model soft development capital needed £50,000 in the form of a Revenue Participation Right first payment expected April 2008
Case studies – pre-funding of fundraising
St. Cuthbert’s Church (2003) third phase of extensive redevelopment project required building
contracts to be signed, but fundraising was not 100% committed pre-funding of fundraising £80,000 standby facility undrawn, facility ‘recycled’ facility renewed 2007 £50,000 underwriting ahead of BLF grant undrawn, facility recently recycled
