paul cheng chief officers feb 2011
DESCRIPTION
TRANSCRIPT
CAF Venturesome – Impact Investing
Paul Cheng
Senior Investment Manager, CAF Venturesome
The text in this document may be reproduced free of charge providing that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Venturesome copyright and the title of the document specified.
Leading UK impact investor
Emerging industry – but still fragile
Finance-first vs Impact-first
The social investment market: risk / return
(100%)
(80%)
(60%)
(40%)
(20%)
0%
20%
40%
Ex
pe
cte
d r
etu
rn (
%)
Low Financial Risk
Philanthropy
Impact InvestmentProperty / working capital Development capital
Commercial returns
VS Bridging Fund
VS Development Fund
Classical grant making (-100%)
Reduced financial return compensated by social impact
High Financial Risk
Loss of capital compensated by social impact
Giving Multiplier
The investor universe
+ 8%
The investor universe
+ 8%
Market-rate return
The investor universe
+ 8%0%
Market-rate return
The investor universe
+ 8%0%
Market-rate returnCapital-protected
The investor universe
- 100% + 8%0%
Capital-protected Market-rate return
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
- 15%
The investor universe
- 100% + 8%0%
Capital-protected Market-rate returnGrant-makers
- 15%
?
Income/revenue is distinct from capital
Income / revenue covers the costs of expenditure of ongoing work
(service provision, projects etc) suppliers of income = PURCHASERS of your work
Capital money and other resources that enable you to deliver
your service / project / work capital funders = INVESTORS in your organisation
Philanthropic equity vs Revenue funding
Charities need a capital base
Capital base is required for:1. Working capital
2. Financial resilience
3. Growth or development
Few charities are able to create a surplus that can be set aside as reserves
Emerging supply of capital for charities and social enterprise
Mad money – the irrational world of development finance
Surpluses are bad Cash is restricted Price does not have to cover costs Marginal costs of growth can be ignored Overhead is a luxury and a distraction
Venturesome provides capital funding
Since 2002, we have offered £20m to over 270 small- and medium-sized charities
Provide capital investment in the form of unsecured loans, underwriting and equity-like investments
To date, 96% of funds have been recycled, to be reinvested
Nearly nine out of ten organisations have achieved or outperformed initial capacity building aims
Helping individual charities – what we offer
1. Working capital to cover cash flow fluctuations
2. Development capital – ‘hard’ and ‘soft’
3. Pre-funding of fundraising – bridging loan
4. Underwriting – standby facilities
Life cycle of an organisation
Matching financial mechanisms to funding needs
Matching financial mechanisms to funding needs
Secured loan
Standby Facility
Overdraft
Unsecured Loan
Patient Capital
Quasi-equity
Equity
Grant
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
Matching financial mechanisms to funding needs
Secured loan
Standby Facility
Overdraft
Unsecured Loan
Patient Capital
Quasi-equity
Equity
Grant
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
LOW RISK HIGH RISK
Property/Asset purchase (mortgage)
Cashflow bridging
Pre-funding Capital Fundraising
Higher risk working capital
Development Capital
Matching financial mechanisms to funding needs
Secured loan
Standby Facility
Overdraft
Unsecured Loan
Patient Capital
Quasi-equity
Equity
Grant
HIGH CHANCE OF REPAYMENT
LOW CHANCE OF REPAYMENT
LOW RISK HIGH RISK
Property/Asset purchase (mortgage)
Cashflow bridging
Pre-funding Capital Fundraising
Higher risk working capital)
Development Capital
Matching financial mechanisms to funding needs
Unsecured Loan
Overdraft
Quasi-equity
Equity
Grant
Pre-funding capital
fundraising
Higher risk working capital Development
capital
Standby Facility
LOW RISK HIGHRISK
Property/Asset purchase (mortgage)
Appropriate Funding (correlation)
Patient
Capital
Secured loan
Cashflow bridging
LOW
CHANCE OF REPAYMENT
HIGH
CHANCE OF REPAYMENT
Charity or business?
Social benefit
enterprise
Social purpose business
Socially responsible
business
Commercial enterprise
Charity with fundraised/
grant income
Charity with ‘on mission’
trading/ contracting
Business generating profits for charitable
spend
Grey area in which organisations are often loosely referred to as social enterprises
Helps manage timing of income/expenditure
1. Working capital
Beat On average income matched expenditure, but income typically ‘lumpy’
while expenditure remained fixed Venturesome underwrote reserves using a standby facility to help
manage uncertainty
St Peters Church Undertaking major refurbishment work requiring £1.6m fundraising
campaign Helped structure fundraising approach to enable the church to proceed
with its plans, providing £200,000 to pay builders ahead of future fundraising income
Helps manage rainy days
2. Financial resilience
Bedford Creative Arts Local educational charity had to move offices at short notice, at the same
time as experiencing uncertainty around key funding streams Venturesome provided a £20,000 financial safety net for a year to help
the charity through uncertain times
Global Links Initiative Small charity managing international network connecting social
entrepreneurs Venturesome provided a financial bridge to legacy income, protecting the
work while future plans were reviewed
Enables investment in your organisation
3. Growth or development
Book Aid International The charity wished to invest in a door-to-door fundraising campaign to
diversify income streams, but couldn’t risk all its reserves in doing so Venturesome underwrote reserves enabling the charity to invest
successfully
Charity Technology Trust (CTT) Transitioning from grant-dependency to a more diversified income,
including trading Provided £50,000 of equity-like investment, with Venturesome and CTT
sharing the risk associated with the new trading arm
Contact details:
Paul Cheng
03000 123 256
www.venturesome.org
Twitter: @cafventuresome