Shawn Westcott: Impact Investing - Lessons globally and from Sweden (8.4.2014)

IMPACT INVESTING
LessonsGloballyandfromSweden
Impact Invest SCANDINAVIA
SITRA
Helsinki, Finland
8 April 2014
SHAWN WESTCOTT, MSc
Founder & Chairman
Impact Invest Scandinavia
www.impactinvest.se

IMPACT INVEST SCANDINAVIA
www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014
LOCAL
• Founded in October 2012

• A Network of investors to scale up
ﬂow of capital to social enterprises

• “Virtual VC Firm”

• Local focus and international

• Learning/Action Environment for:

• Individual investors

• Private Capital

• Public Funders

• Philanthropies

• Increased interest from funds and
institutional investors

GLOBAL / Toniic
• Founded in October of 2010

• Currently 60+ investors globally (20
in Europe) seeking to place ~
$120M in early stage investments
and funds — rapid traction

• Investing at the rate of roughly 1
deal per month

• Deployed over USD11 million in 25
deals in ﬁrst 24 months

• Expectation for 2014
USD8-10million
In Partnership with

• Deal Flow: Online Platform, Global Partnerships,
Screening
• Collaboration: Online Platform, Global Virtual
Meetings, Interaction formats (Practice Grps)
• Connectedness: Global Community, Network
Infra-structure, Global Gatherings
Global Products, Local Service, lovingly delivered ;-)
Community!
Trust, Practice, Learning
Global Products Local Service
• Meetings: Monthly local, bi-monthly regional,
retreats (ski trip, alpine hike, sailing...?)
• Member Support: Connection to members,
entrepreneurs, partners (eg lawyers, advisors...)
• Glocal: interface between local and global
community
• Diligence: upon request from members
OUR OFFERING
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se

IMPACT INVEST PARTNERS

OUR MARKET

THE BASE OF THE PYRAMID

SOCIETY’S URGENT PROBLEMS
GLOBAL
• END POVERTY & HUNGER
• UNIVERSAL EDUCATION
• GENDER EQUALITY
• CHILD HEALTH
• INCLUSION
• YOUTH EMPLOYMENT
• MATERNAL HEALTH
• COMBAT HIV/AIDS
• ENVIRONMENTAL DEGRADATION
• GLOBAL PARTNERSHIP
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014
NATIONAL
• IMMIGRATION & INCLUSION
• YOUTH EMPLOYMENT
• GENDER EQUALITY
• SENIOR CARE
• ENVIRONMENTAL DEGRADATION
• FOSSIL FUEL INVESTMENTS
• GLOBAL PARTNERSHIP
www.impactinvest.se

“When we want to help the poor, we usually offer them charity. Most often we
use charity to avoid recognizing the problem and finding the solution for it.
Charity becomes a way to shrug off our responsibility. But charity is no solution
to poverty. Charity only perpetuates poverty by taking the initiative away from
the poor. Charity allows us to go ahead with our own lives without worrying
about the lives of the poor. Charity appeases our consciences.”
- Muhammad Yunus
SOLUTIONS
BEYOND CHARITY

NEED FOR MORE INNOVATIVE MODEL
“The philanthropic model is not able to deal eﬀectively with social issues...
it does not allow for innovation and scale. We need a kind of investment
in social entrepreneurs that is similar to business entrepreneurs.”
!
Sir Ronald Cohen
Co-founder of VC Fund Apax
known as “Father of British Venture Capital”
Founder Bridges Ventures (2002)
!

BLENDED VALUE
• BLENDED VALUE IS THE IDEA OF
“DOUBLE IMPACT”
• BUILDING SOCIAL CAPITAL
• PUBLIC, PHILANTHROPIC, OR PRIVATE
CAPITAL
www.impactinvest.se

Impact First Investors
Commercially Driven
• Clear commercial driver and (potential for) commercial viability
• Scalable and/or replicable
• Managed by a company or market oriented organisation
Impact
• Social Impact (increasing income, products, environment, opportunities, gender equality among poor people)
• Environmental Impact
Risk-sharing
commitments
• Clearly deﬁned elements of cost-sharing from the company
• Minimum two investors
Innovative
• Innovative; going beyond what exists now, in terms of the product/service, the delivery mechanism/business
model and/or market reach
Hygiene factors
• Avoid negative eﬀects (market distortions, corruption etc)
• Good governance etc
COMMON INVESTMENT CRITERIA

N o n - P r o f i t
N o n - P r o f i t
t h a t
g e n e r a t e s
s o m e i n c o m e
Impact INVESTMENT SPECTRUM
S o c i a l
E n t e r p r i s e
S o c i a l l y
r e s p o n s i b l e
b u s i n e s s
B u s i n e s s e s
t h a t p r a c t i c e
c o r p o r a t e
s o c i a l
r e s p o n s i b i l i t y
T r a d i t i o n a l
f o r - p r o f i t
Our Focus Area
FINANCIAL
FIRST
IMPACT
FIRST
www.impactinvest.se

TYPES OF SOCIAL INVESTMENTS
1. DEBT
• SECURED LOANS
• STANDBY FACILITIES
• OVERDRAFTS
• UNSECURED LOANS
2. EQUITY
• SHARES
• PERMANENTLY INVESTED
3. Quasi-EQUITY
• COMMON TO EARLY HIGH-RISK
ENTERPRISES
• DOESN’T REQUIRE ISSUING OF
SHARES
• BASED ON FUTURE REVENUES
www.impactinvest.se

Social Entrepreneurs are transforming
social and environmental challenges  
into business opportunities
• Sustainability 
Kumaza, BERL, Urban Farmers
• Climate Change 
CO2Cut, Solar Mosaic
• Poverty 
Working World, SMV Wheels
• Water & Sanitation 
X-Runner, Sanergy, WADI
• Healthcare 
eHealthpoint, Aravind
• Political Activism 
Change.org, purpose.com
• Education 
Bridge Academies, Ubiquity University
Impact Investors are mobilizing signiﬁcant
resources to address these challenges
• Impact Investment growing from $50bn today
to $650bn in 3-4 years (GIIN)
• EIF raising a €500m Impact Investment FoF
• Toniic investors invested in  
25 deals totaling >$10m in  
24 months!
• Big Society Capital being capitalized with
GBP600m
• Impact Base lists 125 Impact Investment Funds
The Impact
Opportunity
THE IMPACT OPPORTUNITY

http://impactiq.org/impact-investment-performance-tiptoeing-toward-transparency/
STEPS TO IMPACT INVESTING
www.impactinvest.se

SET UP $10M impact FUND
๏ Diversity in portfolio for less risk, split into
“financials first”, “blended”, and “impact first”
๏ 38 investments made
๏ Use fund for ‘incubator’ role
๏ Investing in poorer areas can be much more
investment effective
๏ Good results from direct investments
๏ Total return over 5 years ranges 1.0-6%
๏ Outperforms all benchmarks but one (fixed
income)
Sonen Capital. Evolution of an Impact Portfolio: From Implementation to Results
EXAMPLE PORTFOLIO: KL FELICITAS
www.impactinvest.se

CROSS-SECTORAL SUPPORT
I N D I V I D U A L S
P H I L A N T H R O P Y
B A N K S &
F I N A N C I A L
I N S T I T U T I O N S
G O V E R N M E N T
Report by J.P. Morgan:
“Between $400bn and $1tr will
be invested over the next
decade in business and services
dedicated to those earning less
than $3,000 a year”
!
There is a growing ecosystem to
support these businesses with
global financial capital
www.impactinvest.se

EVOLVING ECOSYSTEM
Www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014
1. Inspire
• Social Networks
• Events & Conferences
• Promotion
• Awards
2. CONNECT
• Networks
• Intermediaries
• Co-working spaces
• Hackathons
• Peer Support
3. Prepare & Scale
• Fellowship
• Accelerators
• Incubators
• Coaching and Support
4. FUND & Support
• Debt & Equity
• Loans & Guarantees
• Non-Financial
• Local market support
• Favorable Legislation

THE FIRST SOCIAL IMPACT BOND
2010 - Ronald Cohen creates ﬁrst social impact
bond, the now well-known Peterborough Social
Impact Bond, in collaboration with the British
Ministry of Justice.
Why a bond? The aim was to reduce the 60%
recidivism rate by young prisoners within one year
of their release from the Peterborough jail. A bond
would allow for external investors and a mid-term
return agreed in advance in relation to outcomes.
• 17 investors (foundations
and charitable trusts)
• Gov’t Agreed to pay return if
REC. rate dropped to 7.5%
• Sliding yield capped at 13.3%
• If achieved, will outperform
most traditional bond
markets
• Results in 2014

GROWTH OF IMPACT BONDS
• Examples in UK, US,
Australia, NL, NZ, etc.
• ISSUES include Recidivism,
Disadvantaged youth,
Homelessness, Foster Care
• Usually steady rate of
return (Range of 4-15%)
“Social Beneﬁt Bonds” Newpin SBB (AUS)

SCANDINAVIA & “Stipsters”
From Guardian UK, March 2014!
Photograph: Wavebreakmedia

A Different MARKET
• Traditionally strong social sector
• Government led initiatives
• Public ownership in private companies
• Strong volunteer sector
• Relative homogeneity
• Belief in collective responsibility with
individual initiative
• Still young market
• Focus on growing infrastructure

INSPIRING ORGANIZATIONS
www.impactinvest.se

CONNECTING ACTIVITIES
www.impactinvest.se
SE BAR

PREPARATION FOR SCALING
www.impactinvest.se
ACCELERATOR
‣ SHORT-TERM
‣ PACKAGE OF SERVICES
‣ QUICK TO MARKET
‣ OFTEN ESTABLISHED ENTERPRISES
INCUBATOR
‣ LONGer-TERM
‣ FULL-SERVICE
‣ DEDICATED SPACE
‣ ATTACHED TO FUNDING

FUNDING SUPPORT
www.impactinvest.se

POLICY CHANGES
www.impactinvest.se
• Investor deduction introduced 1 Dec 2013.
• Natural person who acquires shares in a company
of a smaller size in connection with its formation
or at a rights issue may get to deduct half of the
payment for the shares in the capital income.
• Deductions given w/ max 650 000 SEK per person
per year, which corresponds to the acquisition of
shares for SEK 1 300 000.
• Investors' total payment for the shares in any one
company shall not exceed 20 000 000 SEK / year.
!
• New green fund for clean tech
• Swedish government aims to invest
approximately 700 million SEK
• Would last until 2020, thus 100 million
SEK would be allocated each year
• “National Social Innovation Strategy”
• use the potential of social innovation
and social entrepreneurship in order
to meet challenges society is facing.
• The goal is that “businesses and
organisation in Sweden reach world-
class innovation ability”
!

A MATURING MARKET...
TODAY
• Dumbing down to “investable or not“
definition
• Focusing on organizational, not impact,
growth
• Generating prohibitive fundraising
costs
• Facing lack of pipeline for investments
due to lack of collaboration, hybrid
financing, information sharing
TOMORROW
• Collaborative thinking about lifecycle needs
of a social business
• Reframed debate on global impact growth
and hybrid financing across instruments
and funders
• New generation of hybrid instruments
• All enabled by a unique pipeline of “impact
opportunities”

...FOR NEW, OR SCALED, HYBRID SOLUTIONS
CROWD FUNDING
• Turning everyone into business angels
• Works for smaller financial needs
• Tangible outputs
!
WORKING CAPITAL/ADVANCES
• Banks or other investor to provide working
capital or advances against future, secure
cashflows (e.g. gvt contracts)
LOAN GUARANTEES
• Foundation or other donor provides (partial)
default guarantee to enable low-interest impact
investments, and to enable impact investments
that would otherwise not be feasible
!
INVESTMENT SUPPORT
• Private donor or foundation provides
investment readiness grant or interest subsidy,
enabling loans or equity
The market is about to change ...
• Sida is re-organising their loans and guarantees
• €92m from European Commission (co-pioneered by Ashoka), flexible terms enabling hybrid deals
• KfW providing matching funding to social enterprises
• GLS and other banks innovating investment products combining donations and savings

THE ROLE OF GOVERNMENT?

How Government Can SUPPORT Impact Investing
‣ Convene
‣ National Direction with Local Actions
‣ Infrastructure Support
‣ Provide legal framework for recognition of social enterprise
‣ Provide Tax incentives
‣ Guarantees for Investing
‣ Funding

CONTACT ME
!
SHAWN WESTCOTT
EMAIL: shawn.westcott@impactinvest.se
PHONE: +46 737 26 44 07

Shawn Westcott: Impact Investing - Lessons globally and from Sweden (8.4.2014)

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Shawn Westcott: Impact Investing - Lessons globally and from Sweden (8.4.2014)