1. Social Investment Workshop
Social Investment Workshop
One East Midlands – The Big Sell 3rd October

2. Workshop Agenda Introduction and expectations (breakout session)
What is social investment?
What role is government taking?
Innovating and growing (breakout session)
Being investment ready
Current social investment initiatives
Exploring the benefits and concerns (breakout session)
Final Q & A
25 mins
20 mins
15 mins

3. Expectations Working in groups of three
What are the questions you always wanted to ask about social investment?
Your experiences of social investment?
What would you like to take way from this workshop?

4. What is Social Investment?
Overview

5. What is Social Investment?
Investment mainly to generate social impact, but with the expectation of some financial return
Social investment provides capital which is giving social sector organisations the capacity to deliver more and to innovate and grow. It is allow consortia to be build and bid for contracts they might not have previously been able to
Over the last ten years various forms of social investment have grown rapidly and new forms are being introduced all of the time
Some charities believe that social investment has nothing to do with them, and is the preserve of social enterprise. There are several reasons for this. Firstly, social enterprises’ business models often lend themselves well to social investment: many have commercial operations that generate a surplus, which can be used to pay off a loan. Secondly, many social investment
products are targeted at social enterprises. And thirdly, social enterprises are often seen to be more business-minded than charities, and so better placed to take on social investment.
However, none of these reasons rule charities out of social investment, and many charities are well placed to take investment on. Hundreds of charities, including Barnardo’s, Scope and Turning Point, have done so already. What is more, many, if not most, social investment intermediaries lend to charities, offering a wide range of appropriate products.

6. What is the role of social investment?
Revenue funding - allows an organisation to deliver defined outputs or outcomes for a project. It can also cover day-to-day activities, regular service provision and on-going projects.
Capital investment - provides finance to build an organisation’s long-term capacity to achieve its social mission. It is used in different ways:
To invest in asset acquisition
As working capital – to manage time differences between spending money and receiving it and so continue on-going activities
As development capital – to invest in innovation, growth and expansion
As reserve capital – as insurance to protect against the unexpected
Some people believe that social investment will never be the right option for charities. They may think that social investment is too ‘commercial’ for charities. Or they may think that the benefits of social investment will never outweigh the risk of the charity being unable to repay the investment and becoming insolvent, which would have a severe negative impact on the people the charity helps.
Social investment does come with risks, and it is unwise for charities to take on an investment without fully considering these. But this does not make social investment an inherently bad thing for charities. As long as a charity has the right structures, processes and controls in place, is confident it will be able to repay the investment, and has considered the risks fully, there is no reason why it should not take an investment on.

7. Why Social Investment over other finance options?
More affordable products
More tailored products
More support
More affordable products: Although some simple products, such as mortgages, can be cheaper from commercial lenders, many social investment products provide interest rates that are lower than many commercial rates. Typical interest rates charged by social investment intermediaries on loans ranges from 5% to 6.5%, but we have also seen products charging as low as 0%.19
More tailored products: Some social investment products are similar to traditional bank products, but tailored in some way to charities and social enterprises (for example, offering a longer repayment period or more flexible repayment terms). There are also some innovative products, such as Social Impact Bonds, which are unique to social investment.
More support: Social investment intermediaries are often more prepared than commercial investors to support charities to become ‘investment ready’. For example, they help the organisation to develop a sound business plan and repayment schedule to enable them to repay the investment.

8. Types of social investment
There are three main types of social investment:
Debt finance investment with the expectation of repayment
Equity finance investment in exchange for a stake in an organisation, usually in the form of shares
Quasi-equity is a hybrid of the two. It fills the gap between debt and equity or grants
Usually takes the form of loans, both secured and unsecured, as well as overdrafts and standby facilities.
The organisation has no legal obligation to repay the amount invested or to pay interest. Equity investors usually invest in organisations that they believe will grow. In return they expect to receive dividends paid out of the organisation’s earnings.
Investment allows an investor to benefit from the future revenues of an organisation through a royalty payment which is a fixed percentage of income.
Example of a QE product
Venturesome is a social investment fund, an initiative of the Charities Aid Foundation (CAF). Venturesome provides capital to civil society
organisations, operating in the space between providers of charitable grants and providers of bank loans at market rates.
Quasi-equity shares the risk and reward of the investment between the investor and the investee by allowing the investor to take a share of future
revenue streams. Unlike a loan, this investment is truly ‘at risk’ i.e. should you not achieve the expected financial performance, a lower – possibly zero – financial return to the investor is payable. If you performs better than expected, then a higher financial return might be payable. Of course, this requires investors to make a judgment about the likely levels of those future revenue streams.
Revenue Participation Agreements (‘RPA’)
The Revenue Participation Right entitles Venturesome to 2% of your gross annual (audited) revenue payable quarterly for five years. It will aim for an growth rate in revenue of 10% - thereby increasing its payment dramatically each year – but only if you grow.

9. How the social investment market works
Capital
Investments Funds and Approved
Investment Readiness
Advice

10. The emerging social investment market
The social investment ‘market’ is still emerging, with new players and new products frequently appearing. This growth in activity has taken place partly in anticipation of the government’s Big Society Capital (formerly the Big Society Bank), and is likely to accelerate when it starts making investments in Big Society Capital will have two roles: a ‘funder of funds’, lending to intermediaries so that they can lend on to charities and social enterprises; and a ‘market builder’, investing in infrastructure (such as impact measurement) to help the market develop.
The market has seen the rise of social investment advisors

11. You will hear lots of other terms – here are some examples
Secured loan
Standby / Underwriting facility
Overdraft facility
Bridging loan
Pre-funding of fundraising
Working capital facility
Grant
Philanthropic capital
Venture philanthropy
Patient capital
Growth / Development capital
Equity investment
Quasi-equity / Revenue participation
Community Development Finance Institutions (CDFIs)
Social impact bonds
Charitable bonds
Community investment
Go to:

12. Development Capital - Case Study (Bridges Ventures)
Auto22 (National Youth Charity)
 Auto22 runs a fully functioning commercial garage which provides training & employment opportunities for disadvantaged and vulnerable young people. It also manages the skills centre located next door, which provides vocational training in motor mechanics while offering a development route through an apprenticeship and ultimately long-term employment in the garage.
Website
Impact The skills centre teaches c young people each year, the majority of whom are from extremely deprived backgrounds (predominantly referred from Pupil Referral Units or Youth Offending Institutions), while each of the garages will provide placements for 10 students a year, in addition to one Apprenticeship place at any one time.
Stage Development Capital - £450k
Date of initial investment 14/02/2012

13. Working Capital - Case Study (Key Fund)
Sportsability was created to work with education, disability support groups and community groups in Hull and the East Riding. They provide structured activity and increase engagement in sports from all parts of the community. 
Having achieved rapid success and an increasing awareness by word of mouth, Sportsability were keen to develop their business and expand their resources.  This involved investing in the development of their team and also extending their equipment to offer a broader range of activities. 
Funding without an asset base is difficult, and the business was unable to secure financial support to achieve their objectives from traditional sources.
Key Fund £9,000 finance package - working capital, specialist coach training , equipment, new website and branded uniforms.
“Working with Key Fund was much simpler than I’d expected.  I’d recommend them to any organisation needing funds to help them grow and increase their impact in the community”.

14. In broad terms how is the investment paid back?
Viable Revenue Model
Helps the organisation innovate, develop and grow
The health and social care charity, Turning Point, received investment and expertise from Big Issue Invest to develop its new social enterprise, Connected Care. The social enterprise delivers health, housing and social care services, which are paid for by local authority contracts. Income from these contracts is then used to repay the original investment. Connected Care reached over 120,000 people in its first year
The organisation use some of this surplus to pay back investment

15. Government's role in promoting Social Investment

16. Vision and Strategy from the Cabinet Office on social investment
“Our vision is to create nothing less than a long-term ‘third pillar’ of finance for our crucial social ventures, alongside traditional giving and funds from the state. This pillar of finance is social investment, money that blends financial return with social return”
This an embryonic market - it has grown from almost nothing over the past 10 years, and in 2011 made nearly £200 million of social investments. But this is still way below its potential scale and the funds available.

17. Progress Update on Big Society Capital
Big Society Capital (BSC), the first social investment institution of its kind in the world.
Funded by dormant bank accounts and equity investment from Britain’s four largest banks, BSC will have approximately £600 million of capital.
It has been set up to be independent of Government
It has committed the first £37 million to 12 investment funds

18. The next twelve months will see Government focus on:
Supporting social entrepreneurs with promising ideas to start- up new social ventures through the development of ‘social incubators’ that provide space, finance and support.
Supporting more social impact bonds to get off the ground and enable social ventures to deliver large public service contracts through a potential dedicated Outcomes Finance Fund.
Remove barriers, making it easier to invest in social ventures by reviewing the legal, regulatory and financial frameworks

19. Innovating and Growing

20. Should my organisation take on social investment?
Social investment has the potential to deliver real benefits for many social organisations. It can help them to scale up their services, develop new projects, innovate new enterprises.
For the disability charity Scope, social investment helped to build new residential facilities for adults with complex disabilities.
The Young People’s charity in Derby Valley CIDS used investment to set up new shops, with surpluses generated by these enterprises too develop Youth Centres and Open Spaces

21. Breakout Session If capital was no issue at all:
How would you want to grow your organisation?
What innovation would you like to explore
How would you increase your social impact?

22. What social investment can achieve
Innovate activities that achieve a real difference: work that struggles to get funding from elsewhere.
Make good use of resources: investment in assets to generate income for years to come.
Become more financially robust: to, increase income, win contracts or smooth out uneven cash flow
Innovate activities that achieve a real difference: Upfront investment can help to finance preventative or early intervention work that struggles to get funding from elsewhere.
Make good use of resources: For example, investment in fixed assets, such as buildings, could help a organisation build a new facility to generate income for years to come. Investment can help to build capacity, allowing for the recruitment of staff or improve systems.
Become more financially robust: Investment can help to:
increase income, for instance, by expanding fundraising or trading activities
win contracts, by strengthening business support or capacity
smooth out uneven cash flow, for example, by covering overheads, such as salaries, while delivering contracts paid in arrears.

23. Being Investment Ready

24. Investment Readiness - what is it all about?
Organisational Readiness:
Strategy - Vision, Goals, Brand and Governance
Financial Management - Business Plans, forecasts and cash flow
Viable Revenue Model - Products and Services, Market context & competition, track record and customer trends (value proposition)
Performance Measurements - KPIs, Reporting, SROI, Outcomes
Risk Management - risk assessments, mitigation plans
People and Culture – Innovation and enterprise, engagement strategies, change management
Investment Proposition:
Social Impact
Clearly identifiable, high social or environmental value creation
People, Products and Projections
Strong management team with proven capability to deliver
High value-for-money product or service
History of positive cash generation or a clear near term path to cash and surplus generation
Available security
Growth Potential
Viable revenue model which is either scalable or replicable
Essentially social ventures need the capacity and skills to assess their financial needs so that they can secure the right investments and manage those investments effectively.
There are a number of myths about the VCSE sector and readiness that need to be busted.
Myth 1: VCSE sector is not business-like: yet a report undertaken for BIS24 suggests that VSCE organisations were more likely to possess a current business plan than non-VCSE organisations. This is borne out by all our case studies
Myth 2: Social enterprises cannot issue equity (shares): evidence suggests that 4%25 of social enterprises sought to issue equity (e.g. CICs limited by share) whereas the Government report that less than 3%26 of SMEs seek equity finance
Myth 3: The social sector is riskier or less attractive to invest in: research suggests “little evidence that social enterprises are either riskier or less well understood ... no significant difference between social enterprises and mainstream businesses in the number that had been rejected”27
Myth 4: Social enterprises are not successful in raising finance: Social Enterprise UK’s annual survey of the sector indicated that 71% of social enterprises surveyed had obtained at least three-quarters of the finance they requested
Pre- Feasibility and Feasibility

25. Viable Revenue Model
The role of the Model is to capture value from innovation and is a fundamental element determining the investment
Infrastructure
Finance
Offer
Customer
Core Capabilities
Value configuration (Activities and Resources)
Partner Network
Value Proposition
Cost Structure
Distribution (marketing) Channels
Customer Relationship
Target Customers
Revenue Streams
While the word model often stirs up images of mathematical formulas, a business model is in fact a story of how a business works to generate revenue. Both start-up ventures and established companies take new products and services to the market through a venture shaped by a specific business model.
Broadly there are six elements of a Revenue model:
Articulate the value proposition – the value created to users by using the product or service
Identify the market segment – to whom and for what purpose is the product useful; specify how revenue is generated by the firm.
Define the value chain – the sequence of activities and information required to allow a company to design, produce, market, deliver and support its product or service.
Estimate the cost structure and profit potential – using the value chain and value proposition identified.
Describe the position of the firm with the value network – link suppliers, customers, partners and competitors.
Formulate the competitive strategy – how will you gain and hold your competitive advantage over competitors or potential new entrants.

26. Case Study – The Investment Journey
Envision is a medium-sized charity, working with 6,000 young people annually in four English cities. Envision views social investment as being ‘on the horizon’ for the charity, and has identified potential investors, but it the journey has taken time
“We recognised three to four years ago that trust funding would never sustain the organisation so we moved to a mixed funding model. We’re developing products that we could sell to corporates and to the education market. We’ve had some initial grant funding to enable that to happen. Most importantly, we've had pro bono consultancy from two venture capitalists and management consultants. They helped us understand our strengths and our offer, create a marketing plan and segment the market. We'll test this out ourselves next year and have put staff in place to enable this. Then we'll need more grant funding to get it to the next level. At the end of next financial year or the one after that we'll be ready to seek investment”.

27. Case Study (Impetus Trust – Venture Philanthropy)
Ripplez (East Midlands) offers an intensive and structured home visiting programme for first-time teenage mothers from economically disadvantaged backgrounds, which has proven to improve the children's long-term health development, their future school readiness and the parents' economic self-sufficiency. This organisation is a PCT spin-out.
Impetus support package
Impetus investment period: (Planning phase investment*)
Planning phase funding approved: £50,000
Pro bono services donated: £38,540
Background to the investment
Impetus is investing in Ripplez initially for months with a view to making a longer-term investment at the end of the planning (readiness) process.
The social venuture is expected to receive up to £400k in strategic funding during the total length of the Impetus investment, and at least the equivalent of that amount in pro bono expertise, management support and additional funds raised.
The aim of the investment is to support Ripplez's ambitious growth strategy.
Impetus Trust works to break the cycle of poverty by investing in ambitious charities and social enterprises that fight economic disadvantage. They use a highly effective venture philanthropy model to accelerate the growth of carefully selected charities and social enterprises so they can help many more people living in poverty
Venture philanthropy packages consist of funding, Investment and Finance, hands-on management support and in-depth specialist expertise

28. Current Social Investment Initiatives

29. Current Social Investment Initiatives (Sept 12)
Name
Link
Big Society Capital
Bridges Social Entrepreneurs Fund
Social Enterprise Investment Fund
Regional Growth Fund
(round 3 now closed)
Business Finance Partnership
Investment and Contract Readiness Fund
Social Incubator Fund

30. Current Social Investment Initiatives (Sept 12)
Name
Link
Social Impact Bond Pilot (MOJ)
Innovation Fund
Social Impact Bond Centre of Excellence (CO)
Community Right to Challenge Support Programme
Community Ownership of Assets Support Programme
Mutual Support Programme
Credit Union Expansion Project
Inspiring Impact
A Social Impact Bond, also known as a Pay for Success Bond or a Social Benefit Bond, is a contract with the public sector in which a commitment is made to pay for improved social outcomes that result in public sector savings. The expected public sector savings are used as a basis for raising investment for prevention and early intervention services that improve social outcomes.
Social Impact Bonds are not bonds in the conventional sense. While they operate over a fixed period of time, they do not offer a fixed rate of return. Repayment to investors is contingent upon specified social outcomes being achieved and therefore in terms of investment risk Social Impact Bonds are more similar to that of a structured product or an equity investment
The Young Foundation describes Social Impact Bonds as: ‘a range of financial assets that entail raising money from third parties and making repayments according to the social impacts achieved

31. Good sources of detailed information
Social Enterprise UK
The Good Deals Almanack D_Almanack_2009_spreads.pdf
Funding Central
Investing for Good
Finding Finance
ClearlySo
JPA Europe has produced a guide, The Social Investment Market in the UK:

32. Social Investment – Benefits and Concerns

33. We would like to capture your thoughts on what you have heard
What do you see as the benefits of social investment?
What are the barriers/ concerns?