2. Objectives of the session:
• To discuss a range of business models used for
creating social impact
– To differentiate between revenue and capital funding
needs within those models
• To explore ‘appropriate’ funding mechanisms,
especially the role of social investment in financing
capital requirements
• To discuss the role of the social investment market,
and the UK’s social investment ‘boom’.
3. Objectives of the session:
• To discuss a range of business models used for
creating social impact
– To differentiate between revenue and capital funding
needs within those models
11.20 – 11.40
• To explore ‘appropriate’ funding mechanisms,
especially the role of social investment in financing
capital requirements
• To discuss the role of the social investment market,
and the UK’s social investment ‘boom’.
4. Achieving social impact:
a familiar model....
Revenue
Outputs
Outcomes
Expenditure on activities
Which in
business
jargon we
could call
‘value’
5. Thinking about this as a business
model
Revenue
Maybe:
Grants
Donations
Contracts
Spot purchases
Expenditure on services
and products
Outputs
Outcomes
Social value
Capacity / capability
Capital
Form maybe:
Grants
Donations
Loans
Equity
Need maybe:
Fixed assets
Working capital
Growth & development
Reserves and insurance
“Surpluses” (Profits),
Financial value
Build capacity through:
Fixed assets and systems
Cash and investment assets
Human resources
Consultancy
This chart ignores externalities created by the organisation – positive
and negative
6. Jargon check....
• revenue
– covers the costs of expenditure of on-going work (service
provision, projects etc)
– suppliers of income = purchasers of the organisations work
– minimise the risk of not achieving intended outcomes /
value
• capital
– money and other resources that build the capacity and
capability needed to deliver your service / project / work
– capital funders = investors in the organisation
– accept and manage the risk of not creating value
7. Is this the only model?
• 3 models?
– Social enterprise
– Fundraising
– Social firm
8. Fundraising business model
“Surpluses” (Profits)
Revenue
Costs of meeting
donors requirements
Investment in
fundraising
Capital
Costs of
delivering
services to
beneficiaries
Capacity to
deliver
services
Outputs
Outcomes
10. Business models, social and financial
value
• Think about the organisations you have
worked with and for:
– How do they generate revenue?
– What business models do they use?
– How do they create value and for who?
11. And what about?
• Microsoft
• Charity shops
• Serco
• A charitable foundation
12. Objectives of the session:
• To discuss a range of business models used for
creating social impact
– To differentiate between revenue and capital funding
needs within those models
• To explore ‘appropriate’ funding mechanisms,
especially the role of social investment in financing
capital requirements
11.45 – 12.20
• To discuss the role of the social investment market,
and the UK’s social investment ‘boom’.
13. Thinking about the role of capital in a
business model
Revenue
Maybe:
Grants
Donations
Contracts
Spot purchases
Expenditure on services
and products
Outputs
Outcomes
Social value
Capacity / capability
“Surpluses”
(Profits), Financial
value
Capital
Form maybe:
Grants
Donations
Loans
Equity
This chart ignores externalities created by the organisation – positive
and negative
14. Thinking about why organisations
need capital
• What things does your organisation use, build
or buy that are not part of on-going service
delivery?
15. Capital needs of organisations
physical
equipment
bridging
finance
pre-funding
revenue
Build and maintain capacity
through:
•Fixed assets and systems
•Cash and investment assets
•Human resources
•Consultancy
growth /
development
reserves /
insurance
• What is the financial risk of
these needs?
– financial risk = “chances of
getting back the initial money
spent”
16. Capital needs (your balance sheet)
physical
equipment
bridging
finance
pre-funding
fundraising
development
relatively low
financial risk
• match the risk of your need
with a financial instrument
that balances this risk
“rainy days”
relatively high
financial risk
financial
need
financial
instrument
17. Types of finance available to you
Instrument
Financial risk to recipient
Example suppliers
Own reserves
None (other than opportunity cost)
n/a
Grant
None – no repayment
Grant makers, venture philanthropists
Equity / Quasi-equity
(royalties)
Lower – if activity fails, nothing to repay
Specialist investors such as Venturesome, Bridges
Social Entrepreneurs Fund
Patient capital e.g.
Preference shares,
unsecured bonds
Lower – can take the form of unsecured
debt/equity-like investment, but over a
longer period and typically on ‘softer’
terms
Few provide genuinely patient capital, Investing for
Good
Overdraft / standby
facility
Medium – short-term cashflow lending
usually against expected revenue
Some banks provide overdrafts (may require security
over assets/personally guaranteed)
Venturesome provides (unsecured) standby facilities
Secured loan
(mortgage)
High – asset used as security to guarantee
repayment
Banks (Charity Bank, Triodos, Unity Trust Bank, and
mainstream lenders)
18. Appropriate financing
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan
Patient
Capital
Quasi-equity
Equity
LOW
CHANCE OF
REPAYMENT
Grant
LOW RISK
HIGH RISK
Physical
equipment
Bridging
finance
Pre-funding of
revenue
Growth
capital
Reservec
capital
19. Fixed Asset Acquisition
• for physical equipment to do the work e.g.
office, desks, chairs, machinery
– Sefton Carers Centre
• needs to buy the building it currently rents
• it’s the only suitable building in the area (cost £1m)
• earns revenues from contracts with local public sector
20. Working Capital
• to manage timing differences between cash out and cash in
– Questscope: bridging finance
• EU contract, paid in arrears
• need to spend money up front doing the work and then claim it back
• to fund on-going costs ahead of revenue
– B-Eat: reserve capital
• income patterns “lumpy”, expenditure pattern constant
• have a track record of average income = expenditure
• raises money from fundraising events, grant makers, some trading of
publications, training and conferences
21. Growth capital
• for exploration / development of new work that
enables better delivery of mission
– Charity Technology Trust: growth capital
• CTXchange supplies software at low cost to charities
• need to invest up to £100,000 in infrastructure and marketing
• increased sales should generate profits to repay the investment
22. Reserve capital / insurance
• for “rainy days” i.e. to protect the organisation’s
work from unexpected shock
– Interhealth:
• notification from landlord of early termination of lease
• premises are specialist / new premises hard to find and costly /
new premises need to be secured immediately
• earns revenue from
– Spot purchasing of medical appointments
– Annual membership fees
23. Objectives of the session:
• To discuss a range of business models used for
creating social impact
– To differentiate between revenue and capital funding
needs within those models
• To explore ‘appropriate’ funding mechanisms,
especially the role of social investment in financing
capital requirements
• To discuss the role of the social investment market,
and the UK’s social investment ‘boom’.
12.25 – 12.40
24. Social investment market, impact
investment, social impact bonds, what?
•
•
•
•
•
Social or impact investment is strategic investment with the primary goal of
improving outcomes for individuals, communities, society
The secondary goal is to see a return on capital
c£180m invested in 2010, majority lending by social banks
Often understood to be about lending to the third sector, but it is broader than
that
Government has a strategy / policy:
–
–
‘Growing the social investment market’
Connects with public sector outsourcing and mutualisation policies too.
25. How does this relate to ‘normal’ investment, or grant
making?
Maximum financial return
Mainstream investing
Ethical / SRI investing
Negative
outcomes for
individuals, co
mmunities, so
ciety
0% return
Social
investment
aka impact
investment
aka
investing
for
outcomes
Neutral
outcomes
Grantmaking
aka Philanthropy
-100%
return =
grants
Positive
outcomes for
individuals,
communities,
society
26. Potted history of investing for
outcomes
• Building societies – c18th: mutual benefit for the community
• Netherlands e.g. Triodos – an idea in 1968, a bank in 1980
•
•
•
•
•
Social Investment Taskforce 2000
Futurebuilders, Community Builders etc 2002+
Growing social investment strategy 2011
Big Society Capital 2011/12
Payment by outcomes & Social Impact Bonds 2011+?
• Plus long history of investment in developing economies
27. Investing for outcomes can’t happen in isolation
•
Currently:
– Majority of investment funds are for
general social purpose
– Returns are too low for the risks
involved
•
Graham Allen MP’s proposal for an ‘Early
Intervention Foundation’ is one model of
focusing on a set of outcomes and
stimulating revenue, capital and
measurement together
28. A market?
Intermediaries linking demand and supply
Social Ventures
Investors
Financial institutions
e.g. pension funds,
investment trusts,
banks
Charities
Social investment intermediaries
Social enterprises
Charitable
foundations
Social businesses
Individuals
Financially excluded
individuals??
29. Returning to the objectives:
• To discuss a range of business models used for
creating social impact
– To differentiate between revenue and capital funding
needs within those models
• To explore ‘appropriate’ funding mechanisms,
especially the role of social investment in financing
capital requirements
• To discuss the role of the social investment market,
and the UK’s social investment ‘boom’.