Social Capital Markets 2008 Recap – January 19, 2009Kerri Golden, Karim Harji and Michael Lewkowitz

Agenda

Introduction The Future of Social Capital Markets (Keynote review) SoCap Recap

The emerging marketplace The role of measurement and metrics An ecosystem of solutions The future of investment funds The evolution of deal-flow The influence of social media and movements

Implications for Ontario Questions Open Discussion

Introduction

Welcome What is SiG@MaRS?

Systems Changing Initiatives MaRS Advisory Services Capacity Building

Series of best practice events

Past - Social Enterprise World Forum Debrief Future - Skoll World Forum 

 Present - Social Capital Markets ReCap 

Karim - Michael - Kerri

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The Future of

Social Capital Markets

Katherine FultonOctober 2008

A Member of The Monitor GroupA Member of The Monitor Group

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A convergence of forces

Money seeking diversification

Values driven investors and consumers

Growing inequity and environmental crisis

Track record of early success

Openings for policy change

Talent pushing new careers

Investingfor impactis now “locked in”

CAN ITTAKE OFF?

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Impact investing today

Impact investing in 5-10 years?

Will the promise of this moment be realized?Phases of Industry Evolution

Disparate entrepreneurial activities spring up in response to market need or policy incentives

Disruptive innovators may pursue new business models in seemingly mature industries

Characterized by lack of competition except at top end of market

Centers of activity begin to develop

Infrastructure is built that reduces transaction costs and supports a higher volume of activity

Uncoordinated InnovationUncoordinated Innovation

Marketplace BuildingMarketplace Building

Growth occurs as mainstream players enter a functioning market

Entities are able to leverage the fixed costs of their previous investments in infrastructure across higher volumes

Organizations may become more specialized

Capturing the Value of the Marketplace

Capturing the Value of the Marketplace

MaturityMaturity

Activities reach a relatively steady state and growth rates slow

Some consolidation may occur

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The question for today is whether the bar will be set high enough—whether pioneering leaders will provide the talent, discipline and resources that will be needed to create a coherent marketplace with high standards for impact.

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Investing for Impact: The Risk is that It Will Be…

too HARD to do Insufficient compensation for

risk results in lack of interest in impact investing

There may not be enough good deals

Execution proves to be too difficult

The economics ultimately may not clear in most areas

Hype creates a bubble, especially from overpromising

too EASY to do The current financial markets

and incentives create a major pull toward “greenwashing” and dilution of standards.

The very premise of having a positive impact is undermined and the industry is discredited

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“Yin-Yang” Deals

Financial Return

None

High

Financial Floor

Impact Floor

Solely Profit-Maximizing Investing

Philanthropy

Impact HighNoneNegative

Optimize social or environmental returns with a financial floor

Impact First Investors

Optimize financial returns with an impact floor

Financial First Investors

Segments of Impact Investors

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Building a Marketplace for Impact Investing

Unlock Latent Supply of Capital by Building Efficient Intermediation

Unlock Latent Supply of Capital by Building Efficient Intermediation

Build Enabling Infrastructure for the Industry

Build Enabling Infrastructure for the Industry

Develop the Absorptive Capacity for Investment Capital

Develop the Absorptive Capacity for Investment Capital

Uncoordinated InnovationUncoordinated Innovation

Marketplace BuildingMarketplace Building

Capturing the Value of the Marketplace

Capturing the Value of the Marketplace

MaturityMaturity

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North America

3,300,000 HNWI

41,200 UHNWI

Europe

3,100,000 HNWI

25,000 UHNWI

High Net Worth Individuals (HNWIs) have assets of at least $1 million (excluding primary residence).Ultra High Net Worth Individuals (UHNWIs) have assets of at least $30 million (excluding primary residence).

Asia-Pacific

2,800,000 HNWI

20,400 UHNWILatin America

400,000 HNWI

10,200 UHNWI

Africa

100,000 HNWI

2,100 UHNWI

Middle East

400,000 HNWI

4,400 UHNWI

Merrill Lynch and CapgeminiWorld Wealth Report 2008

High Net Worth and Ultra High Net Worth Individuals

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A convergence of actions

Create industry defining funds as a beacon for how to address specific social issue(s)

Place substantial catalytic, risk-taking capital in mezzanine finance structures

Develop impact investing network

Set the industry standards for social measurement

Lobby for specific policy / regulatory change

CoordinatedLeadership

THAT’S HOW IT COULD TAKE OFF

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All Investing$61.90 Trillion

Negatively Screened Funds + Impact Investing$2.71 Trillion

How Big Could it Be?

Impact Investing in 5–10 years?

U.S. Philanthropy$0.31 Trillion

Impact Investing has the potential to grow to ~1% of total managed assets, which could result in ~$600B of capital channeled towards social and environmental impact

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"I wouldn't give a nickel for the simplicity on this side of complexity, but I would give my life for the simplicity on the other side of complexity."

— Albert Einstein

Social Capital Markets 2008

The Emerging Marketplace Measurement and Metrics An Ecosystem of Solutions Future of Investment Funds The Evolution of Deal-Flow The Influence of social media and movements

The Emerging Marketplace

“It’s a huge market but there’s no marketplace” All investing= $61.9 Trillion Negatively Screened Funds & Impact Investing = $2.71 Trillion U.S. Philanthropy - $0.31 Trillion

Social investing: SRI, community investment Microfinance: funds (Blue Orchard), IPO (Compartamos) Fund of funds: Calvert Giving Fund Ethical and social stock exchanges: UK, Brazil, South Africa Legal structures: L3C, CIC, B Corporation Online giving marketplaces: Kiva, Microplace, Globalgiving,

Missionfish

Risk, Returns, Impact

Measurement and Metrics

What are we measuring, and why?

Measurement costs money, so who’s going to pay for it?

Investment-first investors vs. impact-first investors

Outcome evaluation: learning from foundation experiences

Acumen Fund: Pulse (formerly PDMS) with Google, Salesforce Fdn

Socialmarkets.org: Self-reported metrics + SROI + crowdsourcing

Rockefeller Fdn: Catalogue of Approaches to Impact Measurement

FSG: New Directions in Foundation Evaluation

“You can’t manage what you can’t measure”… or

“Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.”

Measurement and Metrics

An Ecosystem of Solutions

"Let go of ego. You don't have a silver bullet. We need silver buckshot." ~ Jed Emerson

Legal structures New funds Metrics and measurement Brokerages and exchanges Definitions ...

We need it all…

Future of Investment Funds

Investors – different mandates, most US-based entities Social-purpose business investors:

Market-rate fund with scale - Physic Ventures ($159M) Several emerging pilot funds – New Cycle Capital, Good Capital Angels – large and small: Investors Circle, E-Line Ventures

Social enterprise investors/leading philanthropists:

Foundations and their advisors: Skoll Foundation, Calvert Social Investment Foundation, Imprint Capital Advisors ($100M WK Kellogg Foundation Fund)

Funds that support non-profits and their advisors: Nonprofit Finance Fund, Growth Philanthropy Network

Have certain groups recognized the trend “Consumers and businesses buyingand selling goods and services with mission of doing social good” is the “nextbig thing” investment opportunity and will mainstream investors follow suit?

Fund experience to date…

Fundraising is a challenging task Pilot funds and successful social investments needed

Physic’s predecessor was Great Spirit Ventures ($20M)

“Meaning” is personal to investors/organizations

Most success with smaller family foundations and family offices and corporate strategic investors

CalSters opportunity - meaning intersects strategic interests?

Range of financial returns targeted – 0-3% versus 25-30% Is Philanthropy part of the Social Finance landscape?

Will program-related investments and market-driven business plans continue to be funded by different investors?

A few examples presented where capital of these two sets of investors successfully “co-habits” in an organization

Evolution of Deal-Flow

There is consensus on the following:

Widest group of investors will be attracted to deals that deliver significant social impact as well as market-rate financial returns

Current deal flow, seen by funds is clustered in two areas: High financial return, modest to low-level of social impact Significant social impact, modest to break-even financials

The jury is still out on:

Whether social ventures will be capable of delivering high levels of both financial return and social impact

What return is right for majority of blended-rate investors?

A thesis, borrowed from venture capital, emerges:

If additional capital is made available for blended-return entities, will more deal-flow emerge in the market?

Social/Financial Returns

Will the midway point between zero and market-rate emerge asblended-rate level of financial return for this asset class?

As capital emerges looking forblended-rate return, will we seedeal-flow move to the centre?

What level of socialimpact needed tolower expectations forfinancial return?

Social Media and Movements

The social finance movement

has been building for decades will take decades to realize the full potential

We are at a critical juncture with accelerating momentum Social media is about connection and acceleration

Giving is the beginning Kiva MissionFish MyC4 SocialMarkets

New tools increasing engagement and involvement Wikis, blogs, sites etc. Facebook, Twitter, etc.

Implications for Ontario?

Causeway is a national initiative focused on social finance with “the asks” directed at the federal level calling for an expert panel to be established

Causeway is also applying to the OTF for support of their work in Ontario

MaRS and Causeway recently held a Social Finance Forum, presentations are available online, proceedings are pending

SiG@MaRS commissioned a Strategic Inquiry on Social Finance at the Provincial level which is available online

The Ontario government has made several announcements concerning the establishment of a Social Venture Fund – implementation date pending

Finally, the Ontario Nonprofit Network (ONN) has also established a Working Group on Social Finance – we would like you to join us as we develop a plan for this group

Questions?

What interested you about what you heard here today?

What are the implications for your work?

Are you interested in working with others on advancing any issue you heard about here today?

Are you working on a related social finance initiative you would like to highlight?

If you had to advocate for a particular development in this area, what would it be?

Are their key players who need to be engaged in this work?

Are there other key groups we should be linked into?

Open Discussion

At SiG@MaRS we want to understand the value of the “Social Venture Fund” target zone but now it’s your turn – what would you like to discuss?

Allyson HewittDirector, Social EntrepreneurshipT 416-673-8410E ahewitt@marsdd.comW www.marsdd.com