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1. Venturesome – social purpose finance
Paul Cheng
Investment Manager, Venturesome
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2. Agenda
 Introduction to Venturesome
 Funding needs and financial mechanisms
 The challenges of unlocking capital
 Case studies
(c) Venturesome 2009 2

3. Venturesome: filling a funding gap
 Charities are undercapitalised
 Weak balance sheets
 There are no social investors (just donors)
 Our goal: lack of access to capital is no longer a major
barrier to charities achieving their social impact
 Our mission is to change the way society thinks about
how charities and social purpose businesses should be
financed
(c) Venturesome 2009

4. Mad money – the irrational world of charity
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
(c) Venturesome 2009

5. Our track record
 Since 2002, we have offered over £12m to over
200 charities
 Default rate is very low: <5%
 We are currently managing a fund of £12m
 Our investors are charitable foundations, banks
and high net worth individuals
(c) Venturesome 2009

6. The spectrum of venture capital involvement
Mainstream VC Specialist VC VC / Social Social / VC Philanthropy
PHILANTHROPIC
COMMERCIAL
DRIVERS
DRIVERS
SOCIAL /
Environmenta
l Commercial Social
sustainability, Community Venture
Investment in Enterprise
CSR and SRI Development Philanthropy /
Social / Investment /
consideration Venture Charitable
Environmenta Social
s for Capital Initiatives
l Sectors Venture
Mainstream Capital
VC Investors
(c) Venturesome 2009

7. The spectrum of venture capital involvement
Mainstream VC Specialist VC VC / Social Social / VC Philanthropy
PHILANTHROPIC
COMMERCIAL
DRIVERS
DRIVERS
SOCIAL /
Environmenta
l Commercial Social
sustainability, Community Venture
Investment in Enterprise
CSR and SRI Development Philanthropy /
Social / Investment /
consideration Venture Charitable
Environmenta Social
s for Capital Initiatives
l Sectors Venture
Mainstream Capital
VC Investors
Venturesome
(c) Venturesome 2009

8. 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
(c) Venturesome 2009

9. Main financial mechanisms used by Venturesome
 Underwriting / standby facilities
 undertaking to provide financing for a particular project if
budgeted income does not materialise
 Unsecured loans
 not taking security on the charity’s assets
 Equity and quasi-equity
 the return the funder receives is linked to the financial success
of the venture
(c) Venturesome 2009

10. Matching financial mechanisms to funding needs
(c) Venturesome 2009

11. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
LOW
CHANCE OF
REPAYMENT
(c) Venturesome 2009

12. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
LOW
CHANCE OF
REPAYMENT
(c) Venturesome 2009

13. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
LOW
CHANCE OF
REPAYMENT
(c) Venturesome 2009

14. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
LOW
CHANCE OF
REPAYMENT
(c) Venturesome 2009

15. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan
LOW
CHANCE OF
REPAYMENT
(c) Venturesome 2009

16. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan
Patient
Capital
LOW
CHANCE OF
REPAYMENT
(c) Venturesome 2009

17. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan
Patient
Capital
Quasi-equity
LOW
CHANCE OF
REPAYMENT
(c) Venturesome 2009

18. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan
Patient
Capital
Quasi-equity
Equity
LOW
CHANCE OF
REPAYMENT
(c) Venturesome 2009

19. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan
Patient
Capital
Quasi-equity
Equity
LOW
CHANCE OF Grant
REPAYMENT
(c) Venturesome 2009

20. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Patient
Capital
Quasi-equity
Equity
LOW
CHANCE OF Grant
REPAYMENT
(c) Venturesome 2009

21. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Hard
Patient Development
Capital Capital
Quasi-equity
Equity
LOW
CHANCE OF Grant
REPAYMENT
(c) Venturesome 2009

22. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Hard Working
Patient Development Capital
Capital Capital (closed)
Quasi-equity
Equity
LOW
CHANCE OF Grant
REPAYMENT
(c) Venturesome 2009

23. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Hard Working Pre-funding
Patient Development Capital Capital
Capital Capital (closed) Fundraising
Quasi-equity
Equity
LOW
CHANCE OF Grant
REPAYMENT
(c) Venturesome 2009

24. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Hard Working Pre-funding Working
Patient Development Capital Capital Capital
Capital Capital (closed) Fundraising (open)
Quasi-equity
Equity
LOW
CHANCE OF Grant
REPAYMENT
(c) Venturesome 2009

25. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Hard Working Pre-funding Working Soft
Patient Development Capital Capital Capital Development
Capital Capital (closed) Fundraising (open) Capital
Quasi-equity
Equity
LOW
CHANCE OF Grant
REPAYMENT
(c) Venturesome 2009

26. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Hard Working Pre-funding Working Soft
Patient Development Capital Capital Capital Development
Capital Capital (closed) Fundraising (open) Capital
Quasi-equity
Equity
LOW
CHANCE OF Grant
REPAYMENT
(c) Venturesome 2009

27. Matching financial mechanisms to funding needs
HIGH
CHANCE OF
REPAYMENT
Secured loan
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Hard Working Pre-funding Working Soft
Patient Development Capital Capital Capital Development
Capital Capital (closed) Fundraising (open) Capital
Quasi-equity
Equity
LOW
Grant
INCREASING SUPPLY
LITTLE
CHANCE OF
REPAYMENT SUPPLY (c) Venturesome 2009

28. Matching financial mechanisms to funding needs
(c) Venturesome 2009 15

29. Who funds what?
HIGH Increasing evidence
CHANCE OF Secured loan
of commercial
REPAYMENT finance available
Standby
Facility
Overdraft
Unsecured
Loan LOW RISK HIGH RISK
Working Pre-funding
Hard Working Soft
Capital Capital
Patient Development Capital (open) Development
(closed)
Capital Fundraising Capital
Capital
Quasi-equity
Equity
LOW
Need for further supply
CHANCE OF of capital and
REPAYMENT Grant
development of financial
instruments
(c) Venturesome 2009 16

30. Charity or business?
(c) Venturesome 2009

31. Social enterprise
What is
“social enterprise”?
(c) Venturesome 2009

32. Model 1
“Profit Generator”
(c) Venturesome 2009

33. Model 2
“Trade off financial and social returns”
(c) Venturesome 2009

34. Model 3
“Lock-step”
(c) Venturesome 2009

35. The investor universe
+ 8%
(c) Venturesome 2009

36. The investor universe
+ 8%
Market-rate return
(c) Venturesome 2009

37. The investor universe
0% + 8%
Market-rate return
(c) Venturesome 2009

38. The investor universe
0% + 8%
Capital-protected Market-rate return
(c) Venturesome 2009

39. The investor universe
- 100% 0% + 8%
Capital-protected Market-rate return
(c) Venturesome 2009

40. The investor universe
- 100% 0% + 8%
Grant-makers Capital-protected Market-rate return
(c) Venturesome 2009

41. The investor universe
- 100% - 15% 0% + 8%
Grant-makers Capital-protected Market-rate return
(c) Venturesome 2009

42. The investor universe
- 100% - 15% 0% + 8%
Grant-makers ? Capital-protected Market-rate return
(c) Venturesome 2009

43. Successful social enterprise
IDEAS
PEOPLE FINANCE
(c) Venturesome 2009

44. Effectiveness vs Efficiency
QUALITY
ACCESS COST
(c) Venturesome 2009

45. The challenges to unlocking capital
 Changing the grant-making mindset
(c) Venturesome 2009

46. The challenges to unlocking capital
 Changing the grant-making mindset
 Creating guarantee funds
(c) Venturesome 2009

47. The challenges to unlocking capital
 Changing the grant-making mindset
 Creating guarantee funds
 Using subordinated debt
(c) Venturesome 2009

48. The challenges to unlocking capital
 Changing the grant-making mindset
 Creating guarantee funds
 Using subordinated debt
 Creating retail social investment products
(c) Venturesome 2009

49. The challenges to unlocking capital
 Changing the grant-making mindset
 Creating guarantee funds
 Using subordinated debt
 Creating retail social investment products
 Exploring the negative return spectrum
(c) Venturesome 2009

50. The challenges to unlocking capital
 Changing the grant-making mindset
 Creating guarantee funds
 Using subordinated debt
 Creating retail social investment products
 Exploring the negative return spectrum
The emergence of a new financial services
industry around social enterprises
(c) Venturesome 2009

51. “Not everything that counts can be
counted. And not everything that
can be counted, counts.”
Albert Einstein
(c) Venturesome 2009

52. Case studies – working capital
 Mental Health Media (2006)
 low reserves but refocusing of activities required unrestricted funds to
meet expenditure
 open working capital needed
 standby facility of £50,000
 remains undrawn as funds were raised as expected
 Questscope (2004)
 grants from World Bank and EU up to 14 months late, resulting in
significant working capital problems
 closed working capital needed
 unsecured loan of £60,000
 repaid in full once grant payment was received
(c) Venturesome 2009

53. Case studies – development capital
 Women Like Us (2005)
 budget shortfall plus a cashflow difficulty arising from committed
funding being paid in arrears
 open working capital and soft development capital needed
 £25,000 standby facility and £25,000 unsecured loan
 £20,000 drawn down, being repaid monthly
 Facility extended in 2007; £50,000 standby facility offered
 Charity Technology Trust (2007)
 transitioning from grant-dependency to a more commercial model
 soft development capital needed
 £50,000 in the form of a Revenue Participation Right
 first payment expected April 2008
(c) Venturesome 2009

54. Case studies – pre-funding of fundraising
 St. Cuthbert’s Church (2003)
 third phase of extensive redevelopment project required building
contracts to be signed, but fundraising was not 100% committed
 pre-funding of fundraising
 £80,000 standby facility
 undrawn, facility ‘recycled’
 facility renewed 2007
 £50,000 underwriting ahead of BLF grant
 undrawn, facility recently recycled
(c) Venturesome 2009

55. Contact details:
Paul Cheng
pcheng@cafonline.org
+44 207 832 3056
(c) Venturesome 2009