Workshop Brussels, May 2011 1
Internal and External Financing Financing instrument Financing source Financing form Financing structure Internal financing Target group & beneficiaries Revenues Public funds Fixed fees, project financing External financing Investors without financial return expectations Grants Investors with reduced financial return expectations Equity, debt, mezzanine capital, hybrid capital Investors with market-rate financial return expectations Equity, debt, mezzanine capital
Classification of Financing Instruments Can the social enterprise repay the investment after a few years? Can the social enterprise pay a certain sum (interest, dividend) in each year? No Yes Donations Equity Capital („Patient Capital“) Non- repayable Hybrid Capital Equity Capital Debt Capital (Interest-free loans) Repayable Hybrid Capital Debt Capital Mezzanine Capital Financing Structure
Social Capital Markets Institutions in the Traditional Capital Markets Institutions in the Social Capital Markets Research & Rating Agencies Funding Consultancies Investment Banks Social Investment Advisors Commercial Banks Value Banks Investment Funds Social Investment Funds Venture Capital Funds Venture Philanthropy Funds Stock Exchanges Social Stock Exchanges
Financing Conflicts in Case of Simultaneous Financing Investors with market-rate return expectations Investors with reduced financial return expectations Investors without financial return expectations Public funds Target group & beneficiaries - Trade-Off Interest payment restrictions (no conflict) Crowding Out Tight contractual terms Trade-off Capital providers pursue different interests (e.g. banks and donors) which can lead to conflicts between social and financial returns Crowding out Increase of public funding can lead to a lower amount of donations Tight contractual terms Public funding can prohibit in certain cases the use of additional financing sources Interest payment restrictions Public funding prohibits in certain cases the use of funds for interest or dividend payments