Social finance 101
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Presentation by Stacey Corriveau from the BC Centre for Social Enterprise - delivered at the CISED Social Enterprise Learning Series on April 12th
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Social finance 101
- 1. Social Finance 101This workshop is a project of SiG national / causeway,Generously supported by the ONTARIO Trillium foundation,And presented by the bc centre for social enterprise1
- 2. What well cover today:IntroductionsWhat is social finance?Is social finance a fit for your organization?What social finance tools are available in Canada?Whats next for the social finance sector in Canada?Where can you connect to social finance opportunities, today?Questions are welcomed at any time.Thanks to our local workshop host!2
- 3. Whos in the room?Charities? Non-profits? Co-operatives? Consultants? Others?Board members? Staff? Volunteers?How many are operating social enterprises?How many are considering the launch of one?How many have heard of social finance?3
- 4. Drum roll...4Introducing the online Guide to Social FinanceCreated by Social Innovation Generation NationalFunded by the Ontario Trillium FoundationBookmark www.socialfinance.caContains up-to-date resources including a social finance directory geared to Ontario audiencesThis workshop is based on the Guides content
- 5. What is social finance?5an approach to managing money that delivers a social and/or environmental dividend as well as an economic returnfinancing for social enterprises, social purpose businesses, and community-based organizationssynonymous with impact investing
- 6. What is social finance? (cont)6can be non-repayable (e.g. grants) in cases where the social finance element attracts additional finance or builds scale (i.e. rarer than repayable)the investor wants more than anything for the supported organization / venture to succeed
- 7. Why do we need social finance?7donations, grants, and contributions to non-profits are under duressdemand for social services is increasingsocial / environmental problems are becoming more complexgovernments cant afford to solve these problems alone
- 8. Supporting factors8community-based groups are interested in building greater self-relianceinvestor values are shiftingother countries are establishing best practicesin Canada, a groundswell of systems building is underway
- 9. An important note about grants9Although grants do not commonly form part of the social finance landscape per se, they are an essential component of the community-based sector. Social finance can complement grants. Some organizations may not be suited to repayable financing... ...more about this shortly.
- 10. How can social finance help?10launch a social enterprisegrow a project, organization, or enterprisepurchase real estateincrease community impacts
- 11. Some quick examples...11Community bonds: The Centre for Social Innovation in Toronto raised $1.7M for the purchase and renovation of its new building. Toronto Community Housing Corporation raised a $450M bond for the revitalization of Regent Park.
- 12. Some quick examples...12Mission-related investment: A Canadian family foundation provided a loan from its endowment capital to help a local non-profit purchase a LEED certified office building in the area in which they provide services. The loan is for $3M over 10 years at an interest rate of 6.5%.
- 13. Some quick examples...13Loan: Vancity provided a $5M loan to the Tia-o-qui-aht First Nation to support the development of a local hydro plant, harnessing its local waterway off of Vancouver Island. The project will power 1,700 area homes and net $1.6M annually. Business proceeds will be used to construct a salmon hatchery and to rehabilitate local streams.
- 14. Some quick examples...14Patient capital: The business development arm of the City of Toronto provided a mortgage to the Riverside Immigrant Womens Enterprise, an entrepreneurial hub for women. A repayment holiday was extended: payments were not due until 8 months after the tenants had moved in.
- 15. Who are the social finance players?15SupplyInvestorsGrant makersDemandSocial enterprisesSocial purpose businessesCommunity-based organizations (charities, non-profits, co-ops)Plus intermediaries (financial, capacity building, impact measurement)
- 16. A social approach to finance emergesResponsible Investing $609 billion in Canada (2009)Microfinance$6 billion global (2009)Community Investing $1.4 billion in Canada (2009) Mission Related Investing$32 million in Canada(2010)IMPACTINVESTINGA range of investing approaches are influencing the growth of more proactive placement of capital called Impact Investing
- 17. The question of profitability...17Some organizations / enterprises may never be in a position to link to social finance. Examples are those whose social / environmental bottom lines eclipse their financial one. Training and employment businesses tend to incur 33% more expenses than normal. They may always be subsidized, and/or at breakeven.Such ventures would likely not be in a position to repay debt or investors.
- 18. The question of profitability...18Social Capital Partners five critical factors of social enterprise sustainability... Two business factors (in the ventures control):Business acumen of the operatorsBusiness complexity ...plus...
- 19. The question of profitability...19Three trade-off factors (all conscious choices):Size / nature of the employment barriers of the employeesSkills / training gap (between the people being hired and the skills required)Degree of emphasis on the social mission in the day-to-day decision making process
- 20. What is sustainability20Toronto Enterprise Fund works with employment / training enterprisesThey posit a realistic definition of sustainability for these groupsSustainability = covering business costs with business revenues + covering social costs with grants / subsidyRecognizes financial impacts on the income statements of others (e.g. government)
- 21. Moving on...21Assuming that social finance is a fit for your organizations needs, and the capacity exists for repayment...
- 22. The forms of social finance22Commonly includes: loansequity investmentpatient capitalAnd in some cases:grants that attract new capitalgrants that enable a social enterprise to shift to financial sustainability
- 23. Social finance tools (Canada)23Example of a loanAtira Womens Resource Society recognized that it had real estate management competencies and used these skills to set up a company whose profits subsidize the organization. AtiraProperty Management accessed loans to operate the social enterprise, from Vancity Community Capital and Social Capital Partners Toronto. A condition for both loans was that 50% of the enterprises employees had to be social hires.
- 24. Social finance tools (Canada)24LoansFinancial return on investment (ROI) is a fixed rate, and generally runs at 5-18%Term of investment: fixed termLow involvement in the business / organizationExit of investment is through repayment of the loanLiquidation rights can be first priorityNo voting rights
- 25. Social finance tools (Canada)25Example of patient capitalKitcheners The Working Centre facilitates community projects and operates enterprises that foster training and employment opportunities. They secured a $215K patient capital loan in the form of a flexible mortgage,from the Canadian Alternative Investment Co-operative, for new space for their St. Johns Kitchen project the payments cover an asset (the building) rather than an expense (rent).
- 26. Social finance tools (Canada)26Patient capitalFinancial return on investment (ROI) can run from minus 50% to plus 10%Term of investment: repayment holidaysSome involvement in the business / organizationExit of investment is through repayment of the loanZero liquidation rights (i.e. cant seize assets)No voting rights
- 27. Social finance tools (Canada)27Example of quasi equity financeA social enterprise is engaged in promoting car-sharing as a way to reduce emissions while providing affordable access to drivers. They receive a quasi equity loan from the Toronto Atmospheric Fund, and use it to purchase more vehicles to expand their reach and deepen their impacts.
- 28. Social finance tools (Canada)28Quasi-equityStill suitable for charities and non-profitsFinancial return on investment (ROI) is a variable rate, and can run to 30%Term of investment: 5-7 yearsHigh involvement in the business, through BoardExit of investment is through royalty or repaymentLiquidation rights are generally subordinateVoting rights are structured in the finance agreement
- 29. Social finance tools (Canada)29Example of pure equity financeAn Ottawa environmental organization whose venture will launch locally-owned wind power generators receives an equity investment from the Community Power Fund, which is dedicated to building community power sources: the investor now owns part of the venture through shares.
- 30. Social finance tools (Canada)30Pure equityNot suitable for charities and non-profitsFinancial return on investment has no limitTerm of investment is undefinedHigh involvement in the business, through BoardExit of investment is through royalty or repaymentLiquidation rights are residualVoting rights are exercised through ownership
- 31. Who offers social finance?31Traditional financiersBanks (mostly through impact investing)Community development finance and credit unions (Caissespopulaires, Vancity)Foundations (mission-related investing)Governments (including grants and contributions, and Industry Canada, FedNor / Community Futures)
- 32. Who offers social finance?32Impact investorsCommunity loan funds (e.g. Ottawa Community Loan Fund, Canadian Alternative Investment Co-op, new Community Forward Fund)Environmental and Cleantech funds (e.g. Community Power Fund, Toronto Atmospheric Fund)Social enterprise funds (e.g. Social Capital Partners, CAPE Fund)
- 33. Who offers social finance?33Grants as social financeEnterprising Non Profits TorontoToronto Enterprise FundSocial Venture Partners (Toronto)BC Social Enterprise Fund
- 34. Next steps for Canadian social finance34The sector is nascent.We still need to:Unleash new sources of capital Build an enabling tax and regulatory environmentDevelop a robust investment pipeline
- 35. Canadian Task Force on Social Finance35Convened by Social Innovation Generation (SiG) to identify opportunities to mobilize private capital for public good.Members include Paul Martin, Tim Brodhead, Bill Young, Nancy Neamtan, Tamara Vrooman and other sectoral innovators and influencers.See www.socialfinancetaskforce.caReleased Mobilizing Private Capital for Public Good in December. The paper includes seven recommendations.
- 36. Task Force next steps36SiG is acting as a relationship broker The Task Force itself is not mandated to implement the recommendationsWork is happening across the country with respect to the recommendationsA follow-up report from the Task Force is expected by the end of the year.
- 37. Other important developments37Federal and provincial-territorial governments should embrace the sustainability of Canadas non-profit sector as an explicit policy goal and address problems in the current policy and regulatory frameworks governing the sector that are barriers to this.The federal government should undertake changes to the Income Tax Actto allow charities and non-profits more flexibility to allow enterprising activity as long as all proceeds are directed to fulfillment of the organizations mission.
- 38. Other important developments38Launched by the Government of Ontario in April 2010Project to seek advice and ideas on ways to renew, streamline, and modernize the relationship between the government and the not-for-profit sectorFocused on: collaboration, policy and legislation, funding mechanisms, and information coordinationRecommendations include make a range of social financing tools available to Ontarios not-for-profit sector.
- 39. Connecting to social finance opportunities39At the online Guide to Social Finance, click on Directory of FundsOffers an up-to-date listing of Canadian social finance opportunitiesMore than 30 social finance sources are listed, with detailed information on program requirements, application procedures, and websites
- 40. Thank you...40Stacey Corriveau can be reached at:stacey@centreforsocialenterprise.com604.859.4618
- 41. The social finance task forcerecommendations41Bonus material
- 42. Task Force Recommendations42Recommendation #1To maximize their impact in fulfilling their mission, Canadas public and private foundations should invest at least 10% of their capital in mission-related investments by 2020 and report annually to the public on their activity.
- 43. Task Force Recommendations43Recommendation #2To mobilize new capital for impact investing in Canada, the federal government should partner with private, institutional, and philanthropic investors to establish the Canada Impact Investment Fund. This fund would support existing regional funds to reach scale, and catalyze the formation of new funds.
- 44. Task Force Recommendations44Recommendation #3To channel private capital into effective social and environmental interventions, investors, intermediaries, social enterprise, and policy makers should work together to develop new bond and bond-like instruments.
- 45. Task Force Recommendations45Recommendation #4To explore the opportunity of mobilizing the assets of pension funds in support of impact investing, Canadas governments are encouraged to mandate pension funds to disclose responsible investing practices, clarify fiduciary duty in this respect, and provide incentives to mitigate perceived investment risk.
- 46. Task Force Recommendations46Recommendation #5To ensure that charities and non-profits are positioned to undertake revenue generating activities in support of their missions, regulators and policy makers need to modernize their frameworks. Policy makers should also explore the need for new hybrid corporate forms for social enterprise.
- 47. Task Force Recommendations47Recommendation #6To encourage private investors to provide the lower cost and patient capital that social enterprises need in order to maximize their social and environmental impact, a Tax Working Group should be established. This group should adapt proven tax-incentive models. This initiative should be accomplished for inclusion in 2012 federal and provincial budgets.
- 48. Task Force Recommendations48Recommendation #7To strengthen the business capabilities of charities, non-profits, and other forms of social enterprises, the eligibility criteria of government-sponsored business development programs targeting SMEs should be expanded to explicitly include the range of social enterprises.
Editor's Notes
- #4: May go around the room depending on group size, otherwise show of hands.
- #6: I will verbally define the 3 terms in the 2nd bullet. SBP = (private) social entrepreneurs in this case vs TEFs Social Purpose Enterprise (training / employment business)
- #25: Expected default rate is 1-8%
- #27: Expected default rate is 20-50%
- #29: Variable rate can be based on performance or some other measure, or spanning time, or based on prime.Expected default rate is 10-20%
- #31: Expected default rate is 10-20%
- #32: I will verbally explain fdns / MRI.Will have printout of this page of the Guide, to answer any questions about specific funds
- #41: Will paper copies of the Task Force report be made available? Or too cumbersome?
- #45: Will mention Social Impact Bond here.