Published on April 11, 2014
IMPACT INVESTING LessonsGloballyandfromSweden Impact Invest SCANDINAVIA SITRA Helsinki, Finland 8 April 2014 SHAWN WESTCOTT, MSc Founder & Chairman Impact Invest Scandinavia www.impactinvest.se
IMPACT INVEST SCANDINAVIA www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014 LOCAL • Founded in October 2012 • A Network of investors to scale up ﬂow of capital to social enterprises • “Virtual VC Firm” • Local focus and international • Learning/Action Environment for: • Individual investors • Private Capital • Public Funders • Philanthropies • Increased interest from funds and institutional investors GLOBAL / Toniic • Founded in October of 2010 • Currently 60+ investors globally (20 in Europe) seeking to place ~ $120M in early stage investments and funds — rapid traction • Investing at the rate of roughly 1 deal per month • Deployed over USD11 million in 25 deals in ﬁrst 24 months • Expectation for 2014 USD8-10million In Partnership with
• Deal Flow: Online Platform, Global Partnerships, Screening • Collaboration: Online Platform, Global Virtual Meetings, Interaction formats (Practice Grps) • Connectedness: Global Community, Network Infra-structure, Global Gatherings Global Products, Local Service, lovingly delivered ;-) Community! Trust, Practice, Learning Global Products Local Service • Meetings: Monthly local, bi-monthly regional, retreats (ski trip, alpine hike, sailing...?) • Member Support: Connection to members, entrepreneurs, partners (eg lawyers, advisors...) • Glocal: interface between local and global community • Diligence: upon request from members OUR OFFERING IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
IMPACT INVEST PARTNERS www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014
OUR MARKET IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
THE BASE OF THE PYRAMID IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
SOCIETY’S URGENT PROBLEMS GLOBAL • END POVERTY & HUNGER • UNIVERSAL EDUCATION • GENDER EQUALITY • CHILD HEALTH • INCLUSION • YOUTH EMPLOYMENT • MATERNAL HEALTH • COMBAT HIV/AIDS • ENVIRONMENTAL DEGRADATION • GLOBAL PARTNERSHIP IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 NATIONAL • IMMIGRATION & INCLUSION • YOUTH EMPLOYMENT • GENDER EQUALITY • SENIOR CARE • ENVIRONMENTAL DEGRADATION • FOSSIL FUEL INVESTMENTS • GLOBAL PARTNERSHIP www.impactinvest.se
“When we want to help the poor, we usually oﬀer them charity. Most often we use charity to avoid recognizing the problem and ﬁnding the solution for it. Charity becomes a way to shrug oﬀ our responsibility. But charity is no solution to poverty. Charity only perpetuates poverty by taking the initiative away from the poor. Charity allows us to go ahead with our own lives without worrying about the lives of the poor. Charity appeases our consciences.” - Muhammad Yunus SOLUTIONS BEYOND CHARITY IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
NEED FOR MORE INNOVATIVE MODEL “The philanthropic model is not able to deal eﬀectively with social issues... it does not allow for innovation and scale. We need a kind of investment in social entrepreneurs that is similar to business entrepreneurs.” ! Sir Ronald Cohen Co-founder of VC Fund Apax known as “Father of British Venture Capital” Founder Bridges Ventures (2002) ! IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 BLENDED VALUE • BLENDED VALUE IS THE IDEA OF “DOUBLE IMPACT” • BUILDING SOCIAL CAPITAL • PUBLIC, PHILANTHROPIC, OR PRIVATE CAPITAL www.impactinvest.se
Impact First Investors Commercially Driven • Clear commercial driver and (potential for) commercial viability • Scalable and/or replicable • Managed by a company or market oriented organisation Impact • Social Impact (increasing income, products, environment, opportunities, gender equality among poor people) • Environmental Impact Risk-sharing commitments • Clearly deﬁned elements of cost-sharing from the company • Minimum two investors Innovative • Innovative; going beyond what exists now, in terms of the product/service, the delivery mechanism/business model and/or market reach Hygiene factors • Avoid negative eﬀects (market distortions, corruption etc) • Good governance etc COMMON INVESTMENT CRITERIA IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
N o n - P r o f i t IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 N o n - P r o f i t t h a t g e n e r a t e s s o m e i n c o m e Impact INVESTMENT SPECTRUM S o c i a l E n t e r p r i s e S o c i a l l y r e s p o n s i b l e b u s i n e s s B u s i n e s s e s t h a t p r a c t i c e c o r p o r a t e s o c i a l r e s p o n s i b i l i t y T r a d i t i o n a l f o r - p r o f i t Our Focus Area FINANCIAL FIRST IMPACT FIRST www.impactinvest.se
TYPES OF SOCIAL INVESTMENTS 1. DEBT • SECURED LOANS • STANDBY FACILITIES • OVERDRAFTS • UNSECURED LOANS 2. EQUITY • SHARES • PERMANENTLY INVESTED IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 3. Quasi-EQUITY • COMMON TO EARLY HIGH-RISK ENTERPRISES • DOESN’T REQUIRE ISSUING OF SHARES • BASED ON FUTURE REVENUES www.impactinvest.se
Social Entrepreneurs are transforming social and environmental challenges into business opportunities • Sustainability Kumaza, BERL, Urban Farmers • Climate Change CO2Cut, Solar Mosaic • Poverty Working World, SMV Wheels • Water & Sanitation X-Runner, Sanergy, WADI • Healthcare eHealthpoint, Aravind • Political Activism Change.org, purpose.com • Education Bridge Academies, Ubiquity University Impact Investors are mobilizing signiﬁcant resources to address these challenges • Impact Investment growing from $50bn today to $650bn in 3-4 years (GIIN) • EIF raising a €500m Impact Investment FoF • Toniic investors invested in 25 deals totaling >$10m in 24 months! • Big Society Capital being capitalized with GBP600m • Impact Base lists 125 Impact Investment Funds The Impact Opportunity THE IMPACT OPPORTUNITY IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
http://impactiq.org/impact-investment-performance-tiptoeing-toward-transparency/ IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 STEPS TO IMPACT INVESTING www.impactinvest.se
SET UP $10M impact FUND ๏ Diversity in portfolio for less risk, split into “ﬁnancials ﬁrst”, “blended”, and “impact ﬁrst” ๏ 38 investments made ๏ Use fund for ‘incubator’ role ๏ Investing in poorer areas can be much more investment eﬀective ๏ Good results from direct investments ๏ Total return over 5 years ranges 1.0-6% ๏ Outperforms all benchmarks but one (ﬁxed income) IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 Sonen Capital. Evolution of an Impact Portfolio: From Implementation to Results EXAMPLE PORTFOLIO: KL FELICITAS www.impactinvest.se
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 CROSS-SECTORAL SUPPORT I N D I V I D U A L S P H I L A N T H R O P Y B A N K S & F I N A N C I A L I N S T I T U T I O N S G O V E R N M E N T Report by J.P. Morgan: “Between $400bn and $1tr will be invested over the next decade in business and services dedicated to those earning less than $3,000 a year” ! There is a growing ecosystem to support these businesses with global financial capital www.impactinvest.se
EVOLVING ECOSYSTEM Www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014 1. Inspire • Social Networks • Events & Conferences • Promotion • Awards 2. CONNECT • Networks • Intermediaries • Co-working spaces • Hackathons • Peer Support 3. Prepare & Scale • Fellowship • Accelerators • Incubators • Coaching and Support 4. FUND & Support • Debt & Equity • Loans & Guarantees • Non-Financial • Local market support • Favorable Legislation
THE FIRST SOCIAL IMPACT BOND 2010 - Ronald Cohen creates ﬁrst social impact bond, the now well-known Peterborough Social Impact Bond, in collaboration with the British Ministry of Justice. Why a bond? The aim was to reduce the 60% recidivism rate by young prisoners within one year of their release from the Peterborough jail. A bond would allow for external investors and a mid-term return agreed in advance in relation to outcomes. Www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014 • 17 investors (foundations and charitable trusts) • Gov’t Agreed to pay return if REC. rate dropped to 7.5% • Sliding yield capped at 13.3% • If achieved, will outperform most traditional bond markets • Results in 2014
GROWTH OF IMPACT BONDS Www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014 • Examples in UK, US, Australia, NL, NZ, etc. • ISSUES include Recidivism, Disadvantaged youth, Homelessness, Foster Care • Usually steady rate of return (Range of 4-15%) “Social Beneﬁt Bonds” Newpin SBB (AUS)
SCANDINAVIA & “Stipsters” IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se From Guardian UK, March 2014! Photograph: Wavebreakmedia
A Different MARKET • Traditionally strong social sector • Government led initiatives • Public ownership in private companies • Strong volunteer sector • Relative homogeneity • Belief in collective responsibility with individual initiative • Still young market • Focus on growing infrastructure IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 INSPIRING ORGANIZATIONS www.impactinvest.se
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 CONNECTING ACTIVITIES www.impactinvest.se SE BAR
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 PREPARATION FOR SCALING www.impactinvest.se ACCELERATOR ‣ SHORT-TERM ‣ PACKAGE OF SERVICES ‣ QUICK TO MARKET ‣ OFTEN ESTABLISHED ENTERPRISES INCUBATOR ‣ LONGer-TERM ‣ FULL-SERVICE ‣ DEDICATED SPACE ‣ ATTACHED TO FUNDING
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 FUNDING SUPPORT www.impactinvest.se
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 POLICY CHANGES www.impactinvest.se • Investor deduction introduced 1 Dec 2013. • Natural person who acquires shares in a company of a smaller size in connection with its formation or at a rights issue may get to deduct half of the payment for the shares in the capital income. • Deductions given w/ max 650 000 SEK per person per year, which corresponds to the acquisition of shares for SEK 1 300 000. • Investors' total payment for the shares in any one company shall not exceed 20 000 000 SEK / year. ! • New green fund for clean tech • Swedish government aims to invest approximately 700 million SEK • Would last until 2020, thus 100 million SEK would be allocated each year • “National Social Innovation Strategy” • use the potential of social innovation and social entrepreneurship in order to meet challenges society is facing. • The goal is that “businesses and organisation in Sweden reach world- class innovation ability” !
A MATURING MARKET... TODAY • Dumbing down to “investable or not“ deﬁnition • Focusing on organizational, not impact, growth • Generating prohibitive fundraising costs • Facing lack of pipeline for investments due to lack of collaboration, hybrid ﬁnancing, information sharing TOMORROW • Collaborative thinking about lifecycle needs of a social business • Reframed debate on global impact growth and hybrid ﬁnancing across instruments and funders • New generation of hybrid instruments • All enabled by a unique pipeline of “impact opportunities” IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
...FOR NEW, OR SCALED, HYBRID SOLUTIONS CROWD FUNDING • Turning everyone into business angels • Works for smaller ﬁnancial needs • Tangible outputs ! WORKING CAPITAL/ADVANCES • Banks or other investor to provide working capital or advances against future, secure cashﬂows (e.g. gvt contracts) LOAN GUARANTEES • Foundation or other donor provides (partial) default guarantee to enable low-interest impact investments, and to enable impact investments that would otherwise not be feasible ! INVESTMENT SUPPORT • Private donor or foundation provides investment readiness grant or interest subsidy, enabling loans or equity The market is about to change ... • Sida is re-organising their loans and guarantees • €92m from European Commission (co-pioneered by Ashoka), ﬂexible terms enabling hybrid deals • KfW providing matching funding to social enterprises • GLS and other banks innovating investment products combining donations and savings
THE ROLE OF GOVERNMENT? IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
How Government Can SUPPORT Impact Investing IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se ‣ Convene ‣ National Direction with Local Actions ‣ Infrastructure Support ‣ Provide legal framework for recognition of social enterprise ‣ Provide Tax incentives ‣ Guarantees for Investing ‣ Funding
IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se
CONTACT ME ! SHAWN WESTCOTT EMAIL: firstname.lastname@example.org PHONE: +46 737 26 44 07 www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014
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