On 4th December 2015 the Big Lottery Fund and CBO evaluation team ran a peer learning event for people developing SIBs related to employment, housing and crime. These slides are from the afternoon workshop on working with investors.

1. COMMISSIONING BETTER OUTCOMES
INVESTOR WORKSHOP
Daria Kuznetsova, Strategy and Market Development Director, Big Society Capital,
December 4, 2015 dkuznetsova@bigsocietycapital.com

2. ABOUT BIG SOCIETY CAPITAL
Big Society Capital is an independent financial institution with a social mission, set up to help grow the
social investment market.
Our remit is to grow the social investment market in the UK. We do this by making capital available to
social finance intermediaries who in turn fund frontline organisations.
We also act as a market champion to build understanding and capacity across social enterprises,
charities and government around the use of repayable capital in delivering social outcomes

3. OUR MISSION
TO SUPPORT AND GROW THE SOCIAL INVESTMENT MARKET THROUGH OUR TWO ROLES
• Improving understanding of social investment
• Creating a better environment for social
investment, e.g. tax relief
• Encouraging more investors to become social
investors
• Increasing awareness among charities and social
enterprises that might benefit from social
investment
• £104 million drawn down with co-investment by
the end of 2014
• General and specialist funds: loans, equity,
regional, social issue, community
• Social Impact Bonds
• Social Banks
• Charity Bonds
• Supporting market infrastructure
As an investorAs a market champion
ABOUT BIG SOCIETY CAPITAL

4. PORTFOLIO AND ONE YEAR PIPELINE
Portfolio
Pipeline
• Social Prime (e.g. WP+)
• Charity Bonds
• Social property funds
- Transitional
- Supported living
- Community
4 Scale
Portfolio
Pipeline
• Blended capital targeting sub-
£150k loans
• Further regional and social
bank investments
1 Small & medium
charity finance
Portfolio
Pipeline
• Issue focused partnerships
- Corporates
- Foundations & charities
• Social Impact Bonds
- New funds and platforms
• Tech for Good
• Innovation pilots
2 Social
innovation
Portfolio
Pipeline
• Retail platforms
• Crowdfunding match fund for
SITR
• Community Assets
3 Participation
NESIC
COMMUNITY SHARE
UNDERWRITING

5. £9.96m max outcome payments
£1.65m investment capital
THERE ARE NOW 31 SOCIAL IMPACT BONDS IN THE UK
5
NationalCommissionerLocalCommissioner
2010 2011 2012 2013 2014 2015
Peterborough
Prison
Essex
Children at
edge of Care
GLA Rough
Sleepers St
Mungos
DWP 1 APM
DWP 1
Stratford DP
DWP 1 Indigo
DWP 1 Triodos
DWP 1 PEF
DWP 2 T&T
DWP 2
Adviza
DWP 2
Prevista
DWP 2 3SC
Manchester
Children in
Care
Newcastle
Ways to
Wellness
Worcestershire
Social Isolation
IAAM
Adoption
GLA Thames
Reach
DWP 1 Links 4
Life
Birmingham
Children in
Care
FCF Local
Solutions
FCF Fusion
Housing
FCF St Basils
FCF Depaul
FCF The
Y/Ambition
FCF Home
Group
YEF
Futureshapers
Sheffiled
YEF Unlocking
Potential
YEF Teens and
Toddlers
YEF Prevista
FCF P3
Cardiff children
in or at the
edge of care
Evolution of Social Impact Bond market in UK Observations
• 31 SIBs operational in the UK to
date
• More than 50 SIBs in various stages
of development
• Certain social issues more
appropriate for SIBs than others
• Range of structures
£1.34m max outcome payments
£550,000 investment capital
£2.5m max outcome payments
£900,000 investment capital
£4.9m max outcome payments
£3.1m investment capital
£4.5m max outcome payments
£1.5m investment capital
£3.7 max outcome payments
£900,000 investment capital
£7.9m max outcome payments
£1m investment capital
£3.74m max
outcome payments
£690,000
investment capital

6. WHO ARE THE INVESTORS
• Investors can either invest directly or through a specialist fund manager
• Range of social and financial return requirements
• Range of risk appetite
Foundations
• Barrow Cadbury Charitable Trust
• Esmée Fairbairn Foundation
• Friends Provident Foundation
• Omidyar
• The Henry Smith Charity
• Johansson Family Foundation
• LankellyChase Foundation
• The Monument Trust
• Panahpur Charitable Trust
• Paul Hamlyn Foundation
• Tudor Trust
• The Prince of Wales’s Charitable Foundation
• King Baudouin Foundation
• Berkshire Community Foundation
• Impetus Trust
• Montpelier Foundation
Institutional investors
• QBE Insurance
• European Investment Fund
• Great Manchester Pension Fund
• Merseyside Pension Fund
• Deutsche Bank
Retail Investors
Other Investors
• Bracknell Forest Homes
• Buckinghamshire County Council
Specialist fund managers
• Bridges Ventures Social Impact Bond Fund
• Caf Venturesome
• Keyfund
• Big Issue Invest
• Nesta

7. WHY ARE SOCIAL INVESTORS INVOLVED IN SIBS?
Why are social investors involved in
SIBs?
• Social Issue – commitment to tackling social need and achieving better outcomes
• Scaling up innovative interventions - facilitating take up of innovative
interventions that could transform existing approaches
• Financial return directly linked to social impact - Financial return is only
achieved if social outcomes are generated
• Rigour and focus from hands on & interactive investment approach by investors
working in collaboration with delivery bodies
• Capacity building for future PBR-type contracting from central Government or
Europe

8. WHAT IS THE POTENTIAL VALUE OF INVESTOR
INVOLVEMENT
Risk sharing
SIB delivery
experience and
shared learnings
Constructive
challenge and
rigorous
performance
management
Networks and
relationships
Additional
capacity building
for the providers

9. WHAT ARE INVESTORS LOOKING FOR
Structure and
incentives
• Does the outcomes
contract and the SIB
payment mechanism
maximise delivery of
impact?
• How robust are the
outcome assumptions
and are the outcome
payments aligned to the
intended impact?
• How are risks shared
across all parties?
• Are there other external
bodies that can
influence success? Are
there incentives aligned
to those of the
programme?
• Are there structures to
respond to effective
performance
management?
Proposed
Intervention
• What evidence is there
for the intervention
delivering the target
outcomes?
• Do we understand the
needs of the beneficiary
group and is the
intervention
appropriately targeting
those needs?
Delivery plans
• Do the staff of the
delivery organisation (s)
have the relevant
expertise and skills to
deliver the programme?
• Are governance
structures robust?
• Is performance
management in place?
• Are there data systems
in place or are there
plans to develop
systems?
• How ready is the
organisation to ramp up
operations?
Local buy in
• Is there buy in for the
programme with local
partners?
• Are the appropriate
partnerships set up to
deliver the programme?
• Is the referral pathway
clear?

10. RISK
Commissioner Investor Provider Intermediary
Reputational risk
Financial risk (savings
<outcome payments)
Financial risk (cost>
outcome payments)
Intervention risk
Execution risk
Demand/Referral risk
Other

11. INVESTOR LESSONS LEARNT
Development
Phase
• Stakeholder buy in
• Outcome and cohort
definition
• Staged payments
• Intervention development
• Incentive alignment
• Risk sharing
Legal
• Termination clauses
• Investor commitment and
caps on liability
• Exclusivity of service
provision
• Intellectual property
rights over service
delivery
Operational
• Ramp up
• Data systems
• Performance
management
• Governance
• Local buy in
• Impact of policy changes

12. GROUP EXERCISE

13. TASK IN GROUPS
You are running a fund with investment from Big Society Capital, 2 foundations
and a Local Authority Pension Fund
Your mission is to maximise social return whilst returning capital with a small
return to your investors. You aim to do this by balancing social impact, risk and
return across your portfolio.
You have £500,000 left to invest and there are 3 Social Impact Bond
opportunities
Discuss what type of questions you would ask each of the programmes and
decide which you would back/

14. APPENDIX

15. Provider holds outcomes-
based contracts directly.
No investor relationship
with commissioner
Who are we
backing?
Level of outsourced performance management
Direct SIB Intermediated SIB Managed SIB
Typical entity
structure
Performance
management
Investing in
Service Providers
Investing in
Prime Contractors
Deal origin
Investor-owned ltd co. with
Board, which holds main
PbR contract, and sub-
contracts to service provider
Service providers and investors
working with commissioner
Prime contractor
working with
commissioner
Newly formed prime
contractor, which holds PbR
contract, and tenders for
service providers
Within service provider Commissioned by SPV Provided by prime contractor,
which recruits a small team
Example
SIB MODELS
Established service provider
bidding for PbR contract
Within service provider
Direct working capital
Typical
financing
Provider holds PbR contract
directly, but Investor
receives agreed share of PbR
commissioner payments
Investor loan to service
provider, with interest rate
tied to contract success
SPV pays revenue to
service provider and
receives PbR payments
directly from commissioner
Prime contractor pays
revenue to service provider
and receives PbR payments
directly from commissioner
Investor pays revenue to
service provider and receives
PbR payments directly from
commissioner

16. HOW HAS THE SIB MARKET EVOLVED
• Diversity of risk sharing structure
• Different commissioners (central govt, local authority, CCG) and range of social issues – homelessness,
youth unemployment, children at the edge of care, long term conditions and others
• Most national SIBs have contract duration of 3 years with locally commissioned SIBs being longer
• Combination of rate card and individual transactions
• Some have funded new innovations with many using SIB mechanism to scale evidenced approaches
• Contract value £1m - £10m with investment requirement usually <£2m
• Range of outcome metrics and evaluation methods (historical, quasi experimental)
• Other than Peterborough, outcome prices have been set per participant and paid when outcomes have
been achieved.
• Increasing use of intermediate outcomes
• Biggest challenges have been the availability of measurable outcomes and resource required to set up 16