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Professor Alex Nicholls MBA

Professor Alex Nicholls MBA. Social Entrepreneurship and Social Innovation. Investors and Exit. Session 7. 2. Overview. Social Investors Philanthropy: MRI/PRI Venture Philanthropy Market investors Microfinance Compartamos SKS. Social Finance Markets. 4. Philanthropic Investors.

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Professor Alex Nicholls MBA

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  1. Professor Alex Nicholls MBA Social Entrepreneurship and Social Innovation

  2. Investors and Exit Session 7 2

  3. Overview • Social Investors • Philanthropy: MRI/PRI • Venture Philanthropy • Market investors • Microfinance • Compartamos • SKS

  4. Social Finance Markets 4

  5. Philanthropic Investors

  6. Classic Foundation • Endowed by a wealthy benefactor probably • Governed by ‘the great and the good’ • Grant making strategy (5%): • ‘Spray and pray’ • Thematic funding • Asset strategy (95%): • Maintain balance sheet for future generations • Custodians not managers

  7. Key Question Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes? Ragin (2005)

  8. MRI • How can asset deployment help achieve the mission most efficiently and effectively? • Optimise income and capital growth • Driven by grant-making strategy • Transfer assets to mission-aligned charities • Invest in mission-aligned organisations

  9. Portfolio Approach fully commercial assets negatively screened assets (SRI funds) positively screened assets mission resonant investments programme related investments grant making Purely Financial Return Purely Social Return Sub-Market Financial Return

  10. Below-Market Investments Public Equity Fixed Income Private Equity Cash Guarantees Subordinated Loans Senior Loans Cash Grant Support Equity Market-Rate Investments Spectrum

  11. FB Heron Foundation • Using assets to support mission and maximize impact • $32.4 billion in grants; $520 billion in assets (2007) • Expanding the ‘Philanthropic Toolbox’ • Grants as part of a spectrum of tools • Maintaining investment discipline • Conforming with asset allocation policy • Using benchmarks and prudent underwriting practices (including third-party reviewers) • Partnering with others to increase impact • Co-investing, joint underwriting, syndications

  12. FB Heron Foundation • Some key learning from PRI-making • Be serious about being repaid (“moral hazard” issue) • Invest with those you know • Consider intermediaries versus direct investments • Use third-party reviews to increase quality of underwriting and build capacity • The process does not end at the closing • You do not have to do it alone

  13. FB Heron Foundation (2007)

  14. FB Heron Foundation (2007)

  15. FB Heron Foundation (2007)

  16. FB Heron Foundation (2007)

  17. Philanthropy

  18. Esmee Fairbairn Finance Fund

  19. Esmee Fairbairn Finance Fund

  20. Esmee Fairbairn Finance Fund

  21. Venture Philanthropy Venture philanthropy is the philanthropic application of venture capital principles and practice…In addition to grants, venture philanthropists provide networking, management advice and an array of other supports to organizations within a given portfolio of charitable investments REDF

  22. ‘Three Pillars of VP’ • Financial capital • Core funding • Capacity building • Long term and iterative • Intellectual capital • Board-level engagement • Consulting/technical support • Impact measurement systems • Social capital • Networks and peers • Pro bono support John (2006)

  23. Types of VP Services Offered

  24. Engaged Relationship • Transaction relationship > partnership • Tailored finance • Annual reporting > real time involvement • Large portfolios/small engagement > small portfolios/high engagement • Cheque only > ‘beyond the cheque’ • VP develops a close working relationship with investees aiming to add real value John (2007)

  25. VP In USA • Started in USA • c. £3b (2000-2010) • New Profit Inc 750m (1998-2008) • c. £350m p.a. Nicholls (2010)

  26. VP In Europe • Roots in VC/Private Equity • Impetus Trust (UK); Fondazione Oltre (Italy); Breakthrough (UK); One Foundation (Ireland); LGT (Lichtenstein); Rianta Capital (UK) • EVPA • Formed 2004 out of EVCA • 124 members, 18 countries • Peer networking • Research • Seed fund

  27. VP In Europe There is a need and desire for greater collaboration between private equity and the third sector. In order to facilitate this collaboration, an annual BVCA-sponsored forum should be created to enable the two communities to meet and integrate BVCA (2008)

  28. VP In Asia • AVPN • Grow out of EVPA • Established 2010 • VP in Singapore, India, Greater China, Japan, Thailand and Australia

  29. Founded 1998 • Two mutually reinforcing approaches • Multi-year grants • Strategic support • Key partnership with Monitor Group • Investees include: • Teach for All • Kickstart • College Summit

  30. Impetus-PEF

  31. VP In Asia

  32. Set up in 2000 • £100m Millennium Commission grant • Awards to social entrepreneurs • UK wide Fellowship of people who have received awards • Research

  33. Levels of Award • Level 1: Awards of between £500 and £5,000 (expected average of £2,000) • Level 2: Awards of between £10,000 and £20,000 (expected average of £15,000) • UnLtd Ventures: Consultancy Support • Broker resource relationships • Develop new funding proposals • Build management capacity

  34. Level 1 Awards: Risk Capital • Designed to help make new ideas become real projects • 1,000 Level 1 Awards each year across the UK • Aimed at individuals or informal groups of people who want to set up new projects in their spare time • Level 2 Awards: Mezzanine Capital • To support projects that are already developed • Pay for the living expenses of award winners to help them devote more time to their projects • Given out once in the spring and once in the winter

  35. UnLtd Research and Policy • Evaluating the impact of social entrepreneurs • UnLtd Connect • A mentoring and volunteer support network • UnLtd Advantage • Helping social ventures access the right type of investment for growth

  36. Live UnLtd • The home for all of UnLtd's work supporting young people • UnLtdWorld • Connecting you to the people, tools and information you need to change the world • UnLtd India

  37. Founded 2002 • SVA offers: • A strategic, engaged and multi-layered mentoring program • A best practice education program • Funding distribution based on traditional venture capital models • Private ancillary fund service http://www.socialventures.com.au/home.asp

  38. VP Exit • Investor’s role • Determine strategies for new funding to ensure sustainability post exit • Help build capacity to access new finance • Set up capacity milestones towards exit point ‘Not simply a single event (a la IPO), but rather a path, a series of steps, a mindset’ Alter et al (2001)

  39. VP Exits • Access new funders • Build earned income opportunities • Strengthen social enterprise activity • Access new debt financing/APO • Merge with a NFP or FP venture • Transfer programmes to another NFP • Spin off programme into new NFP • Sell NFP to FP • Close programme Alter et al (2001)

  40. Microfinance and Market Investors

  41. MFI: Coverage

  42. MFI: Coverage

  43. MFIs: Sources of Capital • Development agencies • Charities • P2P (Kiva) • Domestic capital markets • e.g. credit lines from commercial banks • Local credit crunches will affect • International capital markets • Unguaranteed or subordinated loans • Long-term debt • Innovative structured products • Private equity

  44. Business Model Development

  45. Accessing Capital Markets • Securitizations, CDO/CLO • Citibank and BRAC • Large volumes of tiny loans • Customized, small CDOs are emerging • Bond Issues • Primarily domestic – often pension funds • CDO or CLO when international • Mainstream ratings • Issue sizes still small • Investment funds (MIVs) • IPOs

  46. Bond Issues USA

  47. Bond Issues International

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