guide to financing for social enterprise › guidetofinance_june05_eng.pdf · amanda dowling...
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Guide To Financing ForSocial Enterprise
Guide To Financing ForSocial Enterprise
Amanda Dowling Manager,CorporateSocialResponsibility,CitizensBankofCanadaDaisy Quon AssistantManager,CommunityEconomicDevelopmentCoastCapitalSavingsDerek Gent InvestmentManager,Non-profitsandCo-operatives, VancityCapitalCorporationKyle Pearce ProgramManager,EnterprisingNon-profitsProgram, VancityCommunityFoundationLiz Lougheed Green ExecutiveDirector,PotluckCaféandCateringPieter van Gils Director,EconomicDevelopment,EcotrustCanada
Advisory Group
Acknowledgements
Guide to FinAncinG For SociAl enterpriSe
Tracey Axelsson ExecutiveDirector,Co-operativeAutoNetworkCam Brewer ExecutiveDirector,Eco-LumberCo-operativeDavid Le Page CEO,FastTracktoEmploymentJanice Abbott ExecutiveDirector,AtiraWomen’sResourceSocietyJeff Calbick PlanningConsultant,UnitedWayoftheLowerMainlandKen Lyotier ExecutiveDirectorandManager,UnitedWeCanKevin Ronaghan ExecutiveDirector,CentreforSustainabilityKyle Pearce FoundingMemberandChair,StrathconaCommunityDentalClinicMauro Vescera ProgramDirector,VancouverFoundationMurray Libergantz BusinessLoansOfficer,CCECCreditUnionPetar Jelinic CommunityLendingManager,CoastCapitalSavingsGreig de Bloeme SeniorBusinessOfficer,WesternEconomicDiversification
Interviewees
Penny Handford ChangeWorksConsulting
Writer
Rich Goulet SunrichManagementLoanDecisionModelPieter van Gils TipsforRaisingCapital
Contributors
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IntroductionSomeParadigmdifferencesBeforeLookingforFinancingFinancingForSocialEnterpriseWhatdoBankersWant?TipsforRaisingCapital
CaseStudies#1StrathconaCommunityDentalClinic#2AtiraPropertyManagementIncorporated#3PotluckCaféandCatering#4Co-operativeAutoNetwork#5Eco-LumberCo-operative#6SocialPurchasingPortal–FastTracktoEmployment#7UnitedWeCan
GlossaryResources#1SourcesofFundsForBuildingOrganizationalCapacity#2SourcesofFundsforBusinessPlanning#3SourcesofFundsForStartUpCosts#4SourcesforOperatingCosts#5OtherResources-Canada#6OtherResources-International
table of contents
Guide to FinAncinG For SociAl enterpriSe
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Astheconcepthasdevelopedandinteresthasgrown,socialenterpriseinitiativeshaveincreasedbothinnumberandinsophistication.Entitieshavebeencreatedwithfundingandfinancingneedsthatarenotmeteitherbytraditionalgrantprogramsorbytraditionaldebt/equityinstruments.
Atthesametime,andinresponsetothecomplexandinterrelatedgoalsofbothincreasingsocialvalueandprofitability,newareasofsocialphilanthropyandsocialventurecapitalhaveemerged.Aswell,financialinstitutions,communityfoundations,governments,andanewbreedofsocialcapitalistshavebeendevelopinginnovativefinancingoptions.Exciting,creativeandflexiblesocialenterprisefinancingarrangementsarenowbeingputtogether.
ThefieldwillbecomeevenmoreinterestinginthenearfuturewiththenewfocusoftheCanadiangovernmentonthe“socialeconomy.”Thefederalgovernmenthasdefinedthesocialeconomyas:
“………‘economic’inthatitinvolvestheproductionofgoodsorservicesandtheirsaleinthemarketeconomy.………‘social’inthatitsmainobjectiveistomeettheneedsofthecommunity,includingdisadvantagedorvulnerablemembers,andbecauseofthevalues(democraticprocess,collectiveempowerment,etc.)onwhichitsgovernanceandoperationarebased.”
In2004,thefederalbudgetplacedaspecialemphasisonsocialenterpriseasaspecificcomponentofthesocialeconomythatitwishestoencourage.Thebudgetofthatyearassignedfundstotheareaanditisexpectedthat,bythefallof2005,therewillbeentitiesinplacetodistributeandadministerthesefunds.
Locatingandobtainingfundsforsocialenterprisecanbecomplicated.Thisguideisanattempttodemystifythefinancingoptionsopentobothnew,andpracticing,socialentrepreneurs.Itmayalsopointtheseentrepreneursinthedirectionoffinancialstrategiesthatmightnototherwisehaveoccurredtothem.
The idea of social enterprise is not new, some thrift shops, and Vancouver YWCA’s hotel, have existed for a long time. However, it is only in recent years that the term “social enterprise” has been applied to such ventures.
Guide to FinAncinG For SociAl enterpriSe
introduction
SocialEconomyBackgrounder.IndustryCanada.http://fednor.ic.gc.ca/epic/internet/infednor-fednor.nsf/en/h_fn02091e.html
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Guide to FinAncinG For SociAl enterpriSe
Well Researched and Written DocumentApplicationsforgrantsandfinancingbothrequireawell-writtenandwell-researcheddocument.Inthecaseofagrant,thisisaproposal.Forfinancing,itisabusinessplan.
FocusJustasapplyingforagrantforanon-profitprograminvolvesknowingtheinterestsofthegrantors,lookingforfinancinginvolvesknowingtheinterestsofthefinanciers.Forexample,ifthenon-profitprogramorserviceisyouth-focused,itisimportanttofindagrantorwhosefundingguidelinesincludesupportingyouth.Whenapplyingforfinancingorlookingforequityinvestmentforsocialenterprise,itisalsoimportanttounderstandtheparticularinterestsofthefinancier.Forexample,VancitySavingsCreditUnionisaleaderinthefieldoffinancingsocialenterprisewhereasbankshavelittleinterestinthearea.
LanguageJustasthenon-profitworldhasitsacronymsand“buzzwords”sodoestheworldoffinancing.Moreover,justasterminologycomesinandoutoffashioninthenon-profitworld,soitdoesintheworldoffinancing.Itisimportanttorememberthatfinanciallanguageisnotamystery!Itisalanguageandculturewhichcanbelearned.Donotbeafraidtoaskquestions;theworstthingtodoistopretendtounderstandforfearoflookingignorant.Mostpeopleinthenon-profitworldarenotknowledgeableaboutfinancing.(Justaspeopleinthefinancialworldarenotusuallyknowledgeableaboutthecomplexitiesofcommunitydevelopmentorstrategiesforcreatingsocialchange.)
Transparency Grantsobtainedfromcommunityfoundationsandgovernmentarerelativelytransparent;thegrantingguidelinesarepublic,themembersofthedecision-makingbodyareknown,alistofrecipientsispublicizedandanannualreportisissued.Governmenttenderingprocessesandevaluationcriteriaforproposalsarepublic,thevalueofcontractsawardedisavailable,andthenameofthesuccessfulbidderisannounced.
Financingisverydifferentfromthis.First,thedetailsofindividualfinancingdealsareconfidential.Moreover,althoughtherearestrict,andpublic,borrowingcriteriarelatedtotermloans,linesofcreditandsoon,intheareasofmoresophisticatedborrowingthereisflexibility.Financierslovedoing“deals”andoftentheloanorinvestmentismadeaccordingtoablendofanumberofelementssuchascharacter,trackrecord,capacitytogrow,collateral,marketconditionsandsoon.Eachcombinationoffactorsisunique.(SeeWhatDoBankersWant?Page23)
People who are familiar with applying for grants will find that obtaining financing is both different from, and similar to, obtaining grants.
Some paradigm differences
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RelationshipsWhilerelationshipsareimportantbothwhenlookingforgrantsandwhenlookingforfinancing,thereisadifferenceinthedegreeoftheimportance.Whengrantingfundsfortheworkofanon-profitorganizationtherepresentativeofthefundingbodyorgovernmentmustviewtheindividualsinvolvedascredible,havingintegrityandhavingtheabilitytosuccessfullymanagetheproject.However,ingeneral,therelationshipbetweentherepresentativeofthefundingbodyandthefundingapplicantwillonlypartlyinfluencetheoutcomeas,inthefinalanalysis,publicpoliciesandguidelineslimittheamountandnatureofthegrant.
Ontheotherhand,especiallyatthehigherlevels,financiershaveagreatdealofdiscretionarypowerandcanputtogethermanydifferentkindsofdeals.Thefinanciercanbethebiggestallyforthesocialentrepreneur.Forexample,Vancityhasagroupofcompaniesthatcanoffereverythingfromgrantstoloanstosubordinateddebtandthepersonnelhavemanycontactswithothergrantors,lenders,andinvestors.SomeoftheindividualsinterviewedforcasestudiesinthisguidespokeofhowVancityemployeeshadassistedthemtoobtainacombinationofgrants,loans,philanthropicventurecapital,andtechnicalassistance.Theoutcomeoftenreflectedthecreativityofthefinancierandhadnotbeenpreviouslyenvisionedbythesocialentrepreneur.
Relationshipsarethekeytoobtainingfinancing.Theserelationshipstaketimetonurtureanditisagoodideatomeetwiththefinancialinstitutionsveryearlyintheprocess.Thereareanumberofreasonsforthis:
•thefinanciergetstoknowyou,•yougettoknowthefinancier,•ifyoukeepthepersoninformed,youwillgetveryvaluablefreefeedbackandpossiblytechnical
assistance,and•iftheindividualseesfinancingpotential,heorshemaybecomeanadvocateforthesocial
enterprise.Thiscanleadtofinancingstrategiesthatyoumayneverhaveimagined.
Althoughtheenterpriseisnotinapositiontoapplyforaloan,onesocialentrepreneurreportedsendingmonthlyfinancialstatementstoafinancierwithwhomthesocialentrepreneurhasestablishedasolidrelationship.Thesocialentrepreneurnotonlygetsfeedback,butalsofeelsthat,whenthetimecomes,theenterprisewillbeinamuchbetterpositiontoapplyforfinancing.
Some paradigm differences continued...
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Guide to FinAncinG For SociAl enterpriSe
Guide to FinAncinG For SociAl enterpriSe
Before looking for financing there must be:•aclearunderstandingoflegalstructureofthesocialenterprise•clearfinancialobjectives•carefullypreparedfinancialdocuments•acapablefinancialmanager
Legal Structure Inordertousethisguide,itisimportanttounderstandthelegalstructureofthesocialenterpriseinquestion,itsborrowingcapabilities,andinvestmentpossibilities.Thebusinessstructurechosenforaparticularsocialenterpriseisacriticalpartofthedevelopmentofthebusinessplan.Althoughadiscussionofthedifferentpossiblebusinessstructuresforsocialenterpriseisoutsidethescopeofthisguide,someofthepossibilitiesare:
•In-House:Asocialenterprisewhichisoperatedbyanon-profitorganizationasadivisionofthenon-profitsociety,noseparatelegalstructureiscreated.
•WhollyOwnedSubsidiary:Asocialenterprisecreatedasacorporationwhichisowned,andcontrolled,byanon-profitorganization.
•SubsidiaryCompanywithaPartner:Similartoabovebutthenon-profitsocietyisthemajorityshareholderinacompanywhichhasothershareholders.
•JointVenture:Thisisavariationofthepartnershipdescribedabovebutthecontrolissharedequallyamongshareholdingpartners.
•Co-operative:Asocialenterprisecanbeaco-operativeofcommunitymembersoraco-operativeofnon-profitsocieties.Suchco-operativescanhaveinvestmentshareholders.
Financial ObjectivesAwell-writtenbusinessplanwillarticulatethetypeoffinancingneeded.Thebusinessplanshouldcontaincarefullyresearchedandaccuratefinancialobjectivesandfinancialstatements.
Whendevelopingabusinessplanforasocialenterprise,therewillbedifferentfinancialobjectivesatdifferentstages.Forexample,
•Attheideastage,thefinancialobjectivemaybetofindtheresourcestoconductafeasibilitystudy.
•Atanearlystage,thefinancialobjectivemaybetofindresourcestobuildtechnicalcapacity.•Atthestartupphase,thefinancialobjectivemaybetoacquiretheequipmentneeded.•Asthebusinessdevelops,thefinancialobjectivemaybetobreakeven.•Laterinthebusinessdevelopmentcycle,thefinancialobjectivemaybetoachieveaprofit
(withorwithoutborrowedfunds).•Asthebusinessgrows,thefinancialobjectivemaybetoincreasesalesthroughmoresophisti-
catedmarketingstrategies.
Eachofthesefinancialobjectivesrequiresadifferentfinancialstrategy.Asocialenterprisewillhaveanumberofdifferentfinancialstrategiesthroughthelifecycleofthebusiness.
Before looking For Financing
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Financial Documents Financialstrategiesarebasedontheinformationprovidedbycertainessentialfinancialdocuments.Thesefinancialdocumentsareanessentialpartofabusinessplan.Thefiguresusedinthesedocumentsareoftenprojectionsbasedeitheronpastperformanceoronmarketresearch.Financialdocumentsusingprojectionsarecalledproformas.
Income Statement: Afinancialperformancereportwhichsetsoutprojectedrevenueandprojectedexpendituresofthesocialenterpriseexpectedduringaspecifictimeframe.
Cash Flow Statement: Showstheflowofcashintoandoutofthesocialenterpriseduringaspecificperiod.Itincludeswhen,andwhere,themoneywillcomefromandwhatitwillbespenton.Thisisthemostrealisticpictureoftheviabilityofthesocialenterpriseasitindicateshowmuchcashwillbeavailableatanygiventime.
Break-even Analysis: Thisshowstheamountofbusinessthesocialenterprisemustdoinordertocovercosts.Atthebreak-evenpoint,thereisnolossorprofittothesocialenterprise.
Balance Sheet: Thisisastatusreport,or“snapshot’ofthefinancialstateofthesocialenterprisebusinessatagivenpointintime.Itshowswhatthesocialenterpriseowns(assets)whatisowed(liabilities)andwhatisleftover(equity).
Thesedocumentsshouldbepreparedverycarefullybecausetheyarethekeytothesuccessofthesocialenterpriseandwillbescrutinizedbyeveryoneapproachedforfinancialsupport.
Capable Financial ManagementManagingthefinancesofabusinessissubstantiallydifferentfrommanagingthefinancesofanon-profitorganization.
Itiscriticalthatthesocialenterprisehassoundfinancialmanagement.Thefinancialmanagerofanon-profitorganizationdevelopingasocialenterprisemayhavetherequiredexpertise.Ifheorshedoesnot,financialmanagementcapacitycanbedeveloped.Thiscanbeachievedinanumberofwayssuchas,
•trainingthecurrentfinancialmanager,•recruitingaboardmemberoradvisorycommitteememberwiththenecessaryskills,•partneringwithanorganizationsuchasBCTechnologySocialVenturePartnerswhosevolun-
teerscanprovidefinancialmanagementskills,or•contractingwithafinancialmanager.
Donotstartupasocialenterpriseuntilthisessentialexpertiseisinplace.
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Atdifferenttimesinthedevelopmentofasocialenterprisetherewillbevariousneedsforcapital,suchas:
•towriteabusinessplan•forfixedassets,forexamplepremises,machinery,equipmentetc•forstartupcosts,forexamplemarketingcampaignstolaunchtheproductorservice•foreverydayoperationofthebusiness.
Ingeneral,therearetwosourcesofcapital:•Equity,orinvestmentfinancing,frompeoplewhoexpecttoshareintheeventual
benefitsofthebusiness.•Debtfinancing,orloans,frompeopleandinstitutionsthatexpectthemoneyplusinterest
repaidaccordingtoanagreed-uponschedule.
Asexplainedbelow,capitalcanlookforaquickfinancialreturnoritcanbe“patient.”
Itisusuallydifficulttosecuredebt–loans–ifthereisnoequityinthebusiness.Inthissense,equityprecedesdebt.
1. EQUITY
1.1 What is Equity?
Thewordequitycanbeusedintwodifferentways:
•Equitycanmeanthedifferencebetweenthemarketvalueofapropertyorbusinessanditsliabilities.
•Equityalsoreferstotheownershipinterestofshareholdersinabusiness.
1.2 Equity and Social Enterprise
1.2.1 Internal Development of EquityCreatingequityinternallyisboththebestfirstsourceofequityandsomethingthatmostfinanciersrequire.Belowareexamplesofhowsocialenterprisescanbuildupequity.Undoubtedly,newwaysofdevelopingequitywillbecreatedasknowledgeaboutsocialenterprisefinancinggrows.
Capital is generally understood to be money that is used for the purpose of making profit. In the field of social enterprise, this money is also required to have a social impact.
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Past SurplusesThebestsourceofequityispassedsurpluses3.Thisisthemoneythatanorganizationhasaccumulatedovertheyears.
Prudentorganizationssavemoneyfromoccasionalsurplusesofincomeoverexpenditures.Thismoneyhastraditionallybeenusedtocoverfutureshortfallssuchascanoccurwhenagovernment-fundedprogramisdiscontinued.
Accumulatedsurplusesaretrickyfornon-profitorganizations.Governmentagencieshavetendedtofrownuponthemunderthemistakenbeliefthatnon-profitswithsurplusesaremakingaprofitandshoulddepletethesefundsbeforereceivingfurtherfinancialassistance.However,thisattitudeappearstobechangingwiththeincreasinginterestinthebusinesslikemanagementofnon-profits.
AnexampleofanorganizationusingaccumulatedsurplusesisAtiraWomen’sResourceSociety,WhiteRockBC.Atirausedsuchsurplusestoconductmarketresearchwhendevelopingtheirpropertymanagementcompany.(Page33)
Creating A Trust FundBecausefundsareoftenscarceandaccumulatedsurplusescanbeproblematic,manynon-profitorganizationsdonotdevelopsignificantcashreserves.Aswell,iftheorganizationisbrandnew,therewillnotbeanysurplusfrompreviousyears.Anothersolutiontothechallengeofdevelopingequityistocreateatrustfund.
Eco-LumberCo-op(Page42hascreatedequitybywithholding5%ofthemoneypaidforgoodsandservicespurchasedfrommembers.Thismoneyisplacedinatrustaccountwhichisusedasequitytosecureloans.Themoneyheldintrustwillbepaidtothememberswhentheloansarerepaid.Member Equity4
Peoplebecomemembersofco-operativesbyacquiringshares.Themoneypaidforthesesharesbecomestheco-operative’sequity.
Forexample,membersoftheCo-operativeAutoNetwork(Page40)purchaseaone-timerefundableshareof$500tojointheco-operative.Inaddition,familymembersoftheprimarymemberscanpurchaseassociatemembershipsfor$250.ThisprovidesalargepercentageoftheCAN’sworkingcapital.
Membershipfeescanalsobechargedbynon-profitsandcouldbecomeasourceofequity.However,itappearsthatthismethodisnotbeenused,sofar,bynon-profitsocietiestocreateequityforsocialenterprise.Onereasonthatthissourceofequityhasnotbeenexploredmaybethatmostnon-profitorganizationswanttokeeptheirmembershipaccessibletoeveryoneandsokeeptheirmembershipfeeslow.
3vanGils,Pieter.FundamentalsofCEDFinance.MakingWaves,Vol11,No.4.4VanGils,Pieter.FundamentalsofCEDFinance.MakingWaves,Vol11,No.4.
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Financing For Social enterprise
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Withsomecreativethinking,itmaybepossibletoprotectthedemocraticnatureofthemembershipofanon-profitand,atthesametime,toexploremembershipfeesasapossiblesourceofequityforenterprisedevelopment.
Equity in Property Somenon-profitorganizationsownbuildings.Theorganization’sequityinthepropertyisthedifferencebetweenthemarketvalueofapropertyanditsliabilities.Thisequitycanbeused,byanon-profitthatwishestostartasocialenterprise,tosecureloans.
1.2.2 Ways to Build Equity with External Help
Traditional PhilanthropyGrantscanbeseenasasourceofequityas,oncegranted,thegrantorhaslittleornocontroloverthemoneyexceptforrequiringafinalreport.
Increasingly,fundersaredescribinggrantsasinvestmentswhichprovideasocial,ratherthanfinancial,return.Insteadofusingtheterm“grant,”fundersaretendingtospeakabout“communityinvestments”or“investinginthedevelopmentofsocialcapital.”
Traditionallygrantsaregiventosupportsocialprograms,communitydevelopment,communityeconomicdevelopment,ororganizationaldevelopment.Manygrantscannotbeusedtofundactivitiesdirectlyrelatedtosocialenterprise.Howeversome,whiletheycannotbeusedforactivitiesdirectlyrelatedtodevelopingsocialenterprise,canbeusedforbuildingthecapacityoftheorganizationinsuchawaythatskillsandexpertiserequiredstartabusinessventurearedeveloped.
Examplesofthesegrantsare:
•PartnersinOrganizationalDevelopment(POD)grantsavailablethroughtheCentreforSustainability.www.centreforsustainability.ca(Page53)TheseincludePOD,ArtsPOD,andEnviroPOD.PODgrantsprovidefundstohireconsultantswhocangivetechnicalassistancetoagenciesengagedinstrengtheningtheirorganization,adaptingtochangeandrespondingtodiversity.
•TheCommunityEconomicDevelopmentTechnicalAssistanceProgram(CEDTAP)fundedbytheMcConnellFamilyFoundationandCareltonUniversitysupportsearly-stageandmaturecommunityeconomicdevelopmentorganizations.www.carleton.ca/cedtap(Page61)CEDTAPgrantscanbeusedtoassisttheorganizationstoaccesstechnicalassistance,tofacilitatelearningexchangesandtoacquirecriticalcomputerresourcesandtechnicalsupportinordertoengageincommunityeconomicdevelopment.CEDTAPgrantsareseedgrants,thereforeotherfinancialcontributionsarerequired.
Forexample,Eco-LumberCo-operative(Page42)receivedaCEDTAPgrant.ThiswastoppedupbyagrantfromtheMountainEquipmentCo-opandsomeoftheexecutivedirector’spersonalfundsandwasusedtowritethebusinessplanfortheco-operative.
MoreinformationaboutrelevantgrantingbodiescanbefoundonPage53.
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Financing For Social enterprise
Venture PhilanthropyVenturePhilanthropyisnew.ThePeninsularCommunityFoundation,SanFranciscoclaimstohavefirstusedtheterm“venturephilanthropy”in1984.Itisaconfusingarea,infact,
“TheventurephilanthropyfieldissodiverseandunsettleditresemblestheWildWest.”-MarioMorino,MorinoInstitute
Venturephilanthropistsalwaysviewgrantsas“investments,”andcalltheorganizationstowhichtheygivemoney“investees.”Theymakelongterm,usually3-6year,commitmentstoanorganizationand,duringthattime,workinpartnershipwiththeorganizationprovidingbusinessskillsandtechnicalassistance.Venturephilanthropistsusesocialoutcomesmeasurestoassessthesocialimpact.
Examplesofventurephilanthropistsare:
•BCTechnologySocialVenturePartners(BCTSVP),acharitablefoundationcreatedbyindividualsinBC’stechnologyindustries,whichsupportsinnovativenon-profitgroupsservingchildren,womenatrisk,andpeoplelivinginVancouver’sDowntownEastside. http://www.bctsvp.org(Page61)BCTSVPprovidesacombinationofgrants,technicalexpertiseandentrepreneurialacumen.
AnexampleofventurewhichisworkinginpartnershipwithBCTSVP,isthesocialpurchasingportaldevelopedbyFastTracktoEmployment.Thisportalwasdevelopedtoencouragebusinessestoadapttheirpurchasingandhiringpracticestoincludeasocialvaluecomponent,specificallybyhiringcompaniesthatparticipateinFTE’sprogram.ParticipatingcompaniescommittobuyingfrombusinessesthathiregraduatesfromFTE’sDowntownEastsidetrainingnetwork,andtohirequalifiedapplicantsfromthatpool.Inadditiontosignificantgrants,BCTSVPcontributedtechnicalassistanceinsystemdesign,businessconceptdevelopment,policyandimplementation,marketingandpromotion,andwebsitedesignandhousing.
•Apartnership,betweentheVancouverFoundation,VancityCommunityFoundation,CoastCapitalSavings,UnitedWay,andthefederalgovernmentthroughWesternEconomicDiversification,hascreatedtheEnterprisingNon-profitsProgram(ENP).ENPisafundingprogramwhichprovidesmatchinggrantstonon-profitorganizationsinBCthatareinterestedinstartingorexpandingabusiness.Attendanceatanorientationprogramisrequired.(Page62)
http://www.coastcapitalsavings.com/documents/ProgramDescriptionFeb05.pdf
Forexample,AtiraWomen’sResourceSocietyreceivedagrantfromtheEnterprisingNon-profitsProgramandmatchedthiswithfundsoftheirowntohiretheInstituteforMedia,Policy,andCivilSociety(IMPACS)–itselfasocialenterprise–todeveloptheirmarketingplan.
5FromCharityVillagehttp://www.charityvillage.com/cv/ires/ires12.htmlMorinoInstitutehttp://www.morino.org
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Financing For Social enterprise
1.3 Equity Investment for Social Enterprise
1.3.1 Equity Investment
Ownershipofaconventionalbusinessisoftendividedintoequalpartsorshares. Thesesharesareownedbyshareholders.Whenthecompanyisamakingprofit,shareholdersreceivedividends,representingtheirshareoftheprofit.Thenumberofsharesaninvestorholdsreflectstheamountofmoneyinvestedandrepresentstheirequity.Theshareholdersreceivefinancialrewards,ordividends,inaccordancewiththenumberofsharestheyholdi.e.inanequitablemanner.
Equity investment isthemoneyaninvestorputsintothebusinessinreturnforanownershipinterest.
Equityinvestorscanbeactiveorpassive.Passiveinvestorsarethosewhoarewillingtotakelittlepartinthemanagementofthecompany.Activeinvestorsexpecttoplayahands-onroleintherunningofthebusiness.
Investorsputtheirmoneyintoabusinessbecausetheyexpectittodowell,howeverifthereisnoprofittheshareholdersdonotmakeanymoney.
Whileloancapitalrequiresinterestpaymentsregardlessoftheprofitabilityofthebusiness,equitycapitaldoesnot.Forthisreason,conventionalbusinessesraiseasignificantpartoftheircapitalneedsintheformofequityratherthanthroughdebt.Thesamereasoningappliestosocialenterprise.
1.3.2 Venture Capital
Venturecapitalistslookforequityinvestmentsthataregoingtomakethemaveryhighinterestrate–or return on investment.Thereturnoninvestmentistheprofitorlossresultingfromaninvestment,usuallyexpressedasanannualpercentagereturn.
Venturecapitalisneededbyenterprisesthatareunsecuredandhaveunprovenearnings.Venturecapitaloftencomesfromapoolofinvestorswhoarewillingtoaccepthighrisksinexchangeforahighrateofreturn.
Conventionalventurecapitalcompanieslookforpromisingstart-uporexpandingbusinesseswhichmaybeabletogrowquicklyandproducesignificantprofits.
Someventureswillsucceed,somewillfail,andventurecapitalistcompanieswanttomaximizethechancesofsuccess.Therefore,theyareactiveinvestorsandwanttoplayamajorpartinthestrategicmanagementofcompaniesinwhichtheyinvest,typicallybybecomingdirectors.
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Guide to FinAncinG For SociAl enterpriSe
Venturecapitalistcompaniesalsolookforexitstrategies,thatistheylookforwaystoextracttheirinvestmentafterafewyearsandmoveon.
Whentherelationshipworks,thecloseinvolvementofaventurecapitalcompanywithaneworexpandingbusinesscanhelpthebusiness.However,noteveryrelationshipbetweenanentrepreneurandaventurecapitalcompanyworkswell.
Applyingtheventurecapitalconcepttosocialenterpriseisverynew,emergingattheendofthe1990s.
RenewalPartnersisanexampleofaventurecapitalcompanyinvestingwiththegoaloflong-termpreservationandsustainabilityinBritishColumbia.Theirprimaryfocusisexpandingconsumeraccesstosociallyresponsible,solutions-orientedservicesandproducts.Wheninvestinginabusiness,RenewalPartnersreservestherighttoputarepresentativeontheboardofdirectors
http://www.renewalpartners.com(Page65)
RenewalPartnerspurchasedinvestmentsharesinEco–LumberCo-op(Page42).
1.3.3 Angel Investors and Social Venture Capital
Thename“angels”wasoriginallygiventothosewhowerepreparedtohelpthetheatricalprofessionbyinvestinginnewproductions.
Angelinvestorsareprivateinvestorswhoarewillingtoputtheirmoneyintohigh-riskventures.Angelinvestorsoftenformapoolofinvestorswhoarewillingtoaccepthighrisksinexchangeforahighrateofreturn,however,theycanalsobeindividualinvestors.
SurreyDeltaImmigrantServicesdevelopedanESL(EnglishasaSecondLanguage)schoolthatwouldserveasarevenuediversificationstrategy.TodothisSDISScreatedaseparatecorporation.FriendsandsupportersoftheSociety-“theSociety’s“angels”-purchasedpreferredsharesindenominationsof$1000,providingtheSocietywithsignificantequity.
2. DEBT
2.1 What is Debt?
Fundamentally,debtisanamountthatisowed.Debtisincurredwhenaloanismade.Theamountoftheloaniscalledtheprincipal.
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Thecostofborrowingthemoneyistheinterest,whichisusuallyapercentageoftheprincipal.Theinterestchargedreflects:
•Therisktothelender.Ifthemoneyistobespentonalowriskbusiness(provenmarket,provencompany,provenmanagement)theinterestratewillberelativelylow.Ifitisahigh-riskbusiness(unprovenmarket,unprovencompany,unprovenmanagement)theinterestratewillberelativelyhigh.
•Howquicklythelendercangetthemoneyback.Iftheloancaneasilybereclaimedinashortamountoftime,theinterestratewillbelowerthanifthemoneycannotbepaidbackformanyyears.
Loansareoftensecured.Thismeansthattheborroweroffersanasset.Anassetisanyitemofvalueownedbythebusinessandcanincludecash,stock,inventories,property,andgoodwill.Theborroweragreesthatthelendercantaketheassetiftheloanisnotrepaid.Theassetthatisofferedassecurityisknownascollateral.
Whenabusinessincursdebt,itacquiresaliability.Inadditiontowhatisowedtolenders,otherliabilitiescouldbemoneyowedtosuppliers,wagesowedtoemployeesandtaxesowed.
Equityinvestmentrequiresabusinesstopayreturnswhichvaryinrelationtotheprofitabilityofthebusiness(andwhichcanbeveryhigh.)Equityinvestorscanwanttobeactiveinthemanagementofthebusiness.Forthesereasons,someentrepreneursprefertousedebtfinancingbecauseloansrepaymentsarecheaper,areusuallyinfixedamountstobepaidonpresetpaymentdatesandlendersdonotwanttobeinvolvedintheoperationofthebusiness.
2.2 Conventional Debt Financing
Conventionaldebtfinancingissometimesreferredtoas“senior”debtasitisthedebtthatisrepaidfirstifthereisabusinessfailure.
Overdraft protection Overdraftprotectioncoversshortfallsinthebusinessaccountuptoanapprovedlimit.Interestischargedonlyontheamountborrowedandtheratesarecompetitive.Monthlyadministrationfeesmaybecharged.
Credit cardsBusinesscreditcardsprovideshort-termloansforsmallerpurchases.Interestratesareusuallyhighbutthereisnointerestifthebalanceispaidoffeverymonth.Manysmallbusinesspeoplerelyextensivelyoncreditcardswhentheyaredevelopingtheirbusinesses.
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Operating Line of CreditAnoperatinglineofcreditisaloanwithasetlimit.Thebusinesscandrawonthelineofcreditwhenneeded.Interestratesarelowerthanmostcreditcardsandsomeloans,andinterestisonlypaidontheoutstandingbalance.Therearenofixedpaymentsexceptforamonthlyfeeandinterest.Thebusinesshastheoptionofpayingdowntheloanasitcanaffordtodoso.Propertyorotherassetsareusuallyrequiredtosecureanoperatinglineofcredit.
PotluckCaféandCatering(Page36)obtainedanoperatinglineofcreditfromVancitySavingsCreditUnion.
Term LoansAtermloanisafixedamountofmoneywhichisborrowed,overafixedperiod.Thisfixedperiodiscalledthetermoftheloan.Termloansareusuallyusedtocoverexpensiveitemssuchascapitalequipment,realestate,orrenovations.Theyhaveestablishedmonthlypayments.Thelenderwillaskforsecurityfortheloan(equityinthebuilding,cash,equipment,etc.)Ifapaymentismissed,thelenderhastherighttodemandimmediaterepayment.
Themostcommontermloanstakenbynon-profitsandsocialenterpriseareintheformofmortgages.
2.3 Debt Financing Secured by Socially Responsible Investments
Newwaysofinvestingaremakingitpossibleforpeopletoinvesttheirmoneysothatitwillhavemaximumsocialandenvironmentalimpact.Someofthesenewinvestmenttools,suchasethicalfunds,arenotavailabletosocialenterpriseastheyareinvestedinpubliccompanies.
However,VancitySavingsCreditUnionhasaninnovativeprogramcalledSharedGrowthDeposits.VancityofferstwotypesofSharedGrowthTermDeposits–CashableorFixedTerm.Vancitymanagestheseinsuchawaythattheyreturnsocial,environmentalandeconomicbenefitstolocalcommunities.
Inaddition,theinvestorcanreceiveamarketrateofreturnorcanchooseanyratebelowmarket.Theinteresttheygiveupispooledandthenusedtoprovideaccesstocredit,orreducedinterestonloansforlocalcommunitygroups.
Eco-LumberCo-opreceivedaloanthatwassecuredbythesepooledfunds.(Page42)
continued...
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Financing For Social enterprise
Guide to FinAncinG For SociAl enterpriSe
continued...
2.4 Community Debt Financing
Communitydebtfinancingisgearedprimarilytowardshigh-riskventuresinruralareas.TheexceptionisPartnersinCommunityHelp(PEACH)intheDowntownEastsideofVancouverwhichoffersaformofcommunitydebtfinancing.
CommunityFuturesDevelopmentCorporations(CFDCs)(Page69)throughoutruralBCprovidebusinesscounsellingandmakeloansofuptoamaximumof$125,000tonewandexistingbusinesses.LoansreceivedfromaCFDCarefullyrepayableatcompetitiveinterestrates.
BecausetheboardsofCFDCscomefromthecommunity,theloanstheymakereflectlocalknowledgeoftheneedsofthecommunity.CFDCsarebecomingincreasinglyawareofthefinancingneedsofsocialenterprise,however,someboardsaremuchmoreconservativethanothers.
In2005,CFDCofSouthFraserobtainedfundsfromWesternEconomicDiversificationtosetupacentreforsocialenterpriseintheAbbotsfordarea.ThiswillbecomeasourceofloansandexpertiseforsocialenterpriseintheFraserValley.
2.5 Program Related Investments (PRI)
Somefoundations,insomecircumstances,willmakeloanstonon-profits,theseareknownas“ProgramRelatedInvestments.”ThereareveryfewfoundationsinCanadawhichdothis,VancityCommunityFoundationisoneofthem(Page59).
StrathconaCommunityDentalClinic(Page30)hadacombinationofatermloanandanoperatinglineofcreditfromVancityCommunityFoundation,whichmadeitpossiblefortheClinictooperateforseveralmonths.
3. WHEN THE LINE BECOMES BLURRED BETWEEN DEBT AND EQUITY
Therearesophisticatedformsofequityanddebtfinancingthatblurtheboundariesbetweenthetwo.
3.3.1 Subordinated Debt
Subordinateddebtisalsoreferredtoassub-debtfinancing,mezzaninefinancing,riskcapitalorgrowthcapital.Subordinateddebtconsistsofloanswhichareunsecuredbutwhicharebasedontheestablishedcashflowofabusiness.
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Guide to FinAncinG For SociAl enterpriSe
Financing For Social enterprise continued...
Subordinateddebtisahybridblendofequityandconventionaldebt.Similartoequity,subordinateddebtisusuallynotsupportedbycollateralassets.Likeconventionaldebt,subordinateddebttypicallyrequiresregularmonthlypaymentsofprincipalandinterest.
Subordinateddebtranksbelowseniordebtwhenitcomestoclaimsonassets.Inthecaseofdefault,creditorswithsubordinateddebtarenotpaidoutuntilaftertheseniordebtholdersarepaidinfull.
Ecotrust,VancityCapitalCorporationandCoastCapitalSavings(throughtheirRisingTidefunds)offersubordinateddebt.
Forexample,Eco-LumberCo-operative(Page42)receivedaloanfromEcotrust(withmoneyfromVancityCapitalCorporation)(Page72)whichfunctionslikeequityinthattheinterestrateistiedtotheamountofsales.Whenthesereachacertainlevel,itwillbefinanciallyprudenttorepaytheloan.
3.3.2 Convertible Loans6
Aconvertibleloanisfirstandforemostaloanandhastobepaidbackwithinterest.
Typically,theconversionfeaturegivesthelenderanoptiontoconvertalloraportionoftheoutstandingprincipaloftheloanintosomeformofanequitypositionintheborrower’scompany.Initsmostbasicform,thelenderhasreservedtherighttoexchangehisorhercreditorpositionwiththecompanytobecomeanownerinthecompany.
Theborroweriswillingtoprovidethelenderthatoptioninexchangeforsecuringmorefavorabletermsontheloan.Forexample,theborrowercouldaskforanycombinationofconcessions,suchas:noclosingcostsonthedeal,noprepaymentpenalties,alowerinterestrateand/or“paymentvacations”withinthetermoftheloan.(Theseareoftenrequestedfortimeswhenthecompanyanticipatessignificantfluctuationsincashflow).
SocialCapitalPartnersoffersconvertibleloans(Page66).
4. “PATIENT” CAPITAL
“Patient”capitalcanbeeitherequityordebt.
Banksandotherlenderstendtothinkin3-5yeartermsforloans.Venturecapitalcompaniestendtolookforshort-termgrowthandprofits,andfastexitstrategies.Bothcanworkagainstlong-termdevelopmentofsustainablebusinesses.
6www.entrepreneur.com
continued...
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Financing For Social enterprise
Guide to FinAncinG For SociAl enterpriSe
continued...
Bycontrast,“patient”capitalimpliesalong-termdebtorfinancialinvestmentwithtermsandconditionsthatdonotrequirequickrepaymentoradesiretomovethemoneyoninaspeedyfashion.
Manysocialenterprisesrequire“patientcapital.”
5. BE AWARE OF THE FINANCIERS’ INTEREST
Aswasdiscussedatthebeginningofthisguide,itisimportanttokeepinmindtheobjectivesofthefinancierandtotrytounderstandwheretheprofileofthesocialenterpriseseekingfinancingfitsinthecomplicatedarrayoflender/investorinterests.Thetableonthefollowingpageisanaidtothisunderstanding.
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Guide to FinAncinG For SociAl enterpriSe
Financing For Social enterprise continued...
page21
THE
SPEC
TRU
M O
F SO
URC
ES O
F FU
ND
S A
ND
FIN
AN
CIER
INTE
REST
S 7
Fina
ncie
rIn
tere
st
Deb
t/Eq
uity
Sour
ces
of F
unds
Fina
ncia
l ent
itie
s
Exam
ples
Char
acte
rist
ics
Mea
sure
men
t of
Soci
al Im
pact
Mea
sure
men
t of
Fina
ncia
l Suc
cess
Trad
itio
nal
Phila
nthr
opy
• Va
ncou
ver
Fo
unda
tion
• Ti
des
Cana
da•
Gov
’t G
rant
s•
Don
atio
ns
• BC
Tec
hnol
ogy
Soci
al
Vent
ure
Part
ners
(B
CTSV
P)•
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• Co
mm
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ture
s
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elop
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t
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• Va
ncit
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mm
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dati
on
• Ec
otru
st•
Rene
wal
Par
tner
s•
Vanc
ity
Capi
tal
Co
rpor
atio
n
• So
cial
Cap
ital
Pa
rtne
rs•
Indi
vidu
al
Phila
nthr
opis
ts
• Ba
nks
& C
redi
t
Uni
ons
• Fi
nanc
e C
o’s
Cr
edit
Car
ds
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ity
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nion
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red
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wth
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epos
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• PO
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rant
s•
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ncia
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wit
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cal h
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mun
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men
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vest
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al V
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vest
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tTr
adit
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l Cap
ital
EQU
ITY
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d/or
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UIT
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ocia
l Im
pact
Inte
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rofi
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ram
Rel
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In
vest
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hari
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seek
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e so
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ds
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gram
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els
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ny H
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orks
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ng ,
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nves
tor I
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acto
rs R
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r Act
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:
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vest
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sl
ight
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e fi
nanc
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etur
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d w
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giv
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sum
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litat
ive
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ial
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litat
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hare
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nced
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ard
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nmen
tal a
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Gra
nts
see
n as
a
form
of
soci
al
inve
stm
ent
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her
risk
or
low
er c
ost
loan
s m
ade
for
econ
omic
de
velo
pmen
t an
d so
cial
impa
ct
Inve
stor
s m
ay
mak
e m
oney
fro
m
inte
rest
but
may
ne
ver
reco
ver
prin
cipa
l
Uns
ecur
ed
inve
stm
ents
for
seed
fu
ndin
g/st
art
ups
Secu
red
loan
s fo
r so
cial
impa
ct.
Conv
enti
onal
offe
ring
s te
rm
loan
s, li
nes
of
cred
it e
tc.
Inve
stm
ent
shar
es
in c
o-op
erat
ives
Forg
ivab
le lo
ans
or
gran
t/ lo
an c
ombo
s Ve
hicl
e lo
an o
r se
cure
d m
ortg
age
Com
mun
ity
Loan
Fun
ds
THE
SOU
RCES
OF
FUN
DS
& S
TAG
E O
F BU
SIN
ESS
DEV
ELO
PMEN
T(D
etai
ls in
Res
ourc
es B
egin
ning
on
Page
50)
Busi
ness
Dev
elop
men
t St
age
Sour
ces
of G
rant
s an
dTe
chni
cal A
ssis
tanc
eSo
urce
s of
Equ
ity
Fina
ncin
gSo
urce
s of
Deb
tFi
nanc
ing
Build
ing
Org
aniza
tiona
l Cap
acity
Busin
ess
Plan
Dev
elop
men
t
Star
t Up
Ope
ratin
g
• Ce
ntre
for S
usta
inab
ility
- PO
D G
rant
s •
Coas
t Cap
ital S
avin
gs C
omm
unity
Fun
d –
Gra
nts
• Co
ast C
apita
l Sav
ings
Fou
ndat
ion
(you
th)
• En
dsw
ell F
ound
atio
n•
Tide
s Fo
unda
tion
• Va
ncity
Sav
ings
Cre
dit U
nion
– G
rant
s •
Vanc
ity C
omm
unity
Fou
ndat
ion
– gr
ants
• Va
ncou
ver F
ound
atio
n
• BC
TSVP
• CE
DTAP
gra
nts
• Co
ast C
apita
l Sav
ings
CED
Dep
artm
ent
• En
terp
risin
g N
on-p
rofit
s Pr
ogra
m
• Va
ncity
Com
mun
ity F
ound
atio
n –
gran
ts
• Re
new
al P
artn
ers
• So
cial V
entu
re P
artn
ers
• N
ew S
ocia
l Ven
ture
Fun
d
• Re
new
al P
artn
ers
• So
cial V
entu
re P
artn
ers
• N
ew S
ocia
l Ven
ture
Fun
d
• Va
ncity
Cap
ital C
orpo
ratio
n•
Ecot
rust
• CC
EC•
Com
mun
ity F
utur
es
Deve
lopm
ent C
orpo
ratio
ns•
Coas
t Cap
ital S
avin
gs R
ising
Ti
de 2
Fun
d•
Ecot
rust
•
Vanc
ity S
avin
gs C
redi
t Uni
on•
Vanc
ity C
omm
unity
Fo
unda
tion
– lo
ans
• BC
T SV
P
Demystifyingloandecisionmakingprocessinvolveslookingatthetransactionfromthepointofviewofbankers.Bankerswilllookatthecharacteroftheborrower,thecapacityofthebusiness,theavailablecollateral,thecapitalavailableandeconomicconditions.ThislistisknownastheFiveCsofLending.Somebankershaveaddedadditional“Cs”howeverthefive“Cs”coverthefundamentals.Oncethebankerhasinformationabouteachelement,theloandecisionisbasedonthebalancebetweenthem.
1. THE FIVE C’S OF LENDING
CharacterLendersarealwaysconcernedwiththecharacteroftheirborrowers.Aretheyhonest?Willtheymakealltheeffortneededtomeettheirfinancialobligationtothelender?Forthemostpart,thereisnotaquantifiablemeasuretojudgecharacter.However,alenderwilllookatqualifications,experienceandmanagementskills,aswellastheborrower’spastpaymentexperience(especiallywiththelender)andreviewacreditbureaureport.Astheassessmentofcharacterislargelysubjective,ithasalottodowiththegeneralimpressionaborrowermakesonthelender.Itisimportanttobepreparedbeforemeetingalendersothatyoucanmakeagoodfirstimpression.
CapacityThelenderwilllookatthefinancialabilityofthesocialenterprisetopaybacktheloanbasedonthehistoryofthebusiness,on-goingcashflow,andassets.Profitabilityandcashflowareofcriticalinteresttothelenderwhowillbelookingatwhetherthebusinesshasthecashflowtomeetthedebtobligationsintheshorttermandtheprofitabilitytomeetdebtobligationsinthelongterm.
CollateralCollateralaretheassetsthatthelenderusesasabackuptorecoverfundsiftheenterprisedefaultsonaloan.Theliquidationvalueoftheseassets(theamountofcashanassetwouldrealizeifsold)mustbesufficienttopaybackthelenderincaseofthebusinesscollapses.Inmanycases,thecollateralistheasset(house,vehicle)thattheloanisusedtopurchase.
Capital Thisisreallythesameasequity.Asequityincreases,themoneythathastobeacquiredthroughloansdecreases.
Financiers love doing “deals.” Loans and investments are made according to a blend of a number of factors such as character, track record, capacity to grow, collateral, market conditions and so on. Each combination of factors is unique.
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What do Bankers Want?
Guide to FinAncinG For SociAl enterpriSe
Loansrequireregularpaymentsandarenotflexible.Ifthecashflowofabusinessislowonemonth,theloanpaymentstillhastobemade.Thereturnonanequityinvestment,ontheotherhand,isflexibleandvarieswiththesuccessofthebusiness.Itisthereforegenerallypreferabletohaveaslittledebtandasmuchequityaspossible.
Forthisreason,bankersareparticularlyinterestedintheDebt to Equity Ratio.DebttoEquityRatioisalsoreferredtoasDebtRatio,FinancialLeverageRatioorLeverageRatio..Forbankers,theupperacceptablelimitofthedebttoequityratioisusually2:1,withnomorethanone-thirdofthedebtbeinglongterm.Aswellasthefinancialstabilityitprovides,bankerswanttoseeasignificantlevelofequitybecause,tothem,thisrepresentsthecommitmentoftheborrower.Iftheborrowerhascreatedsignificantequityinthebusiness,bankersreasonthatthiswillprovidetheborrowerwiththemotivationtoputintheenergyandtimeittakestomakethebusinesssuccessful.
ConditionsConditions refertothenationalandlocaleconomy,theindustry,andthebankitself.Thisisoftendifficulttoquantifybutthelenderwillbethinkingabout:
•generaleconomy,nationally,provinciallyandlocally•interestrates.•economicconditionsthatexistforthebusiness.Whatarepriceprospects?Whatproblemsdoes
theindustryface?•thefinancialinstitution’scurrentleveloflossesandproblemloans•thefinancialinstitution’swillingnesstoriskmakingloansinsomeenvironments.Forexample,
somefinancialinstitutionslimitthenumber,and/oramount,ofloansmadeinone-industrytowns.Evenifthereisastrongmarket,afinancialinstitutionwhichhasalreadymadesignificantloanstobusinessesinacertainmarketmaynotbewillingtomakeanyfurtherloansinthatsector.
2. LOAN DECISION MODEL
Oncethelenderhasgatheredtheinformationaboutcharacter,capacity,collateral,capital,andeconomicconditions,eachelementhastobeweighedagainsttheothers.Theresultingdecisionwillreflectthebalanceofthesefactors.
Thediagramoftheloandecisionmodelonthefollowingpageprovidesapictureofthebalancingoftheelements.Thediagramisofabeambalancedonafulcrum.Asweightisaddedtoeitherside,thebeamwilltiptoonesideortheother.Aperfectlybalancedbeammeansthattheelementsareinbalanceanditisclearthataloancanbeapproved.Inlifehoweverthebeamisrarelyperfectlybalancedandthedecisionisajudgementmadebythebanker.
TheloandecisionmodelinthediagramcontainsfivepiecesthatcanroughlybeequatedtotheFiveC’sofLending.
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Guide to FinAncinG For SociAl enterpriSe
What do Bankers Want? continued...
Management ManagementmeansthesameascharacterintheFiveC’s.Thebankerusingthismodelisparticularlyinterestedintheexperience,education,skills,andcapabilitiesoftheborrower.Inthismodel,thebankerbelievestheidealwouldbeapersonwhohasrunthiskindofbusinesssuccessfullyinthepast.
Repayment Repaymentmeansthesameascapacity.Thebankerusingthismodelislookingatthepastperformanceofthebusiness,financialforecasts,stability,andflexibility.Inthismodel,thebankerbelievesthattheidealwouldbeabusinessthathasthreeyearsofsuccessfulpastperformance.
EquityEquitymeansthesameascapital.Thebankerusingthismodelislookingatthecashcontributionsthatcanbemadebytheborrower.Forthisbanker,theidealwouldbeabusinesswhichhasathirdoftherequiredcapitalinequity.
SecuritySecuritymeansthesameascollateral.Thebankerusingthismodelislookingattheliquidationvaluesofthepropertyandequipmentownedbythebusiness.Forthisbanker,theidealwouldbeabusinesswhichhasenoughequityinthebuildingsandequipmentthat,shouldtheyhavetobesold(liquidated),theamountoncashrealizedwouldcover100%ofanymoneyowingtothebank.
The Personal/Environment/Policy TriangleThePersonal/Environment/PolicyTriangleisroughlythesameasconditionsintheFiveC’sofLendingand,inthisloandecisionmodel,isthefulcrumuponwhichtheotherelementsarebalanced.Thediscretionarypowerofthebankerliesinthisarea.
•Personal referstothepersonalopinionsofthelender,hisorhervalues,prejudices,andprevi-ousexperiencerelatedtothetypeofloaninquestion.
•Environment referstothegeneraleconomy,interestrates,economicconditionsthatexistforthebusiness,thefinancialinstitution’scurrentleveloflossesandproblemloansandso.
•Policy referstoanybankorgovernmentpoliciesthatapplytotheloaninquestion.Suchpoliciesmayapplyinanyoftheareas,thatistheareasofmanagement,repayment,equity,orsecurity.Forexample,
•Management&Repayment:theremaybeapolicythatwaivesorreducestherequire-mentforpreviousexperienceand/orpastperformanceindicatorsinthecaseofyouthentrepreneursorentrepreneurswithdisabilities.
•Equity&Security:theremaybeapolicytorequirelessequityand/orsecurityforloanswhicharebackedbyaloanlossreservefromWesternEconomicDiversification.
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What do Bankers Want?
Guide to FinAncinG For SociAl enterpriSe
continued...
page26
Loan Decision M
odel: Reprinted with perm
ission from Sunrich M
anagement Inc.
Loan Decision M
odelCom
ponent value and balance
Managem
ent
ExperienceEducationSkillsCapabilities
Has run this kind of business sucessfully
Has three years of successful perfom
anceAverage one third equity
100% covered on
liquidation value
Past performance
ForecastsStabilityFlexibility
CashContributions
BuidingsEquipm
ent etc,at liquidationvalues
Repayment
EquitySecurity
Personal
Environment
Policy
From Fundamentals of CED (with slight modifications.) Pieter van Gils, Making Waves, Vol11, No.4.Reproducedwiththepermissionoftheauthor.
Tip #1 - Form a board of directors.Orbarringthat,anadvisoryboard.Collectexperienced,prominent,successfulbusinesspeopleandassociatethemwithyourbusiness.
Thesepeoplecanbevaluableforacoupleofreasons.First,theywillformarichpoolofadviceandexperienceyoucanusetohelpyoubuildasuccessfulbusiness.Butsecond,theywillalsohaveanimpactontheimpressionsofthepeopleyouwanttobringaslendersorinvestors.Aboardcomposedofpeoplehighlyregardedinthecommunityoryourindustrygivesyoualotofcredibility.
Thetruthis,you’llneedaboardeventuallyanyway.Youmightaswellbenefitfromhavingoneupfront.
Tip #2 - Prepare a Business Plan.Thismayseemprettyobvious,butthereareafewimportantpointstobemadehere.
First,youneedtoknowyourbusinessplanbackwardsandforwards,insideandout.Ifyou’vewrittenityourselfthisisagiven.Ifyouhavehaditpreparedbyothers,thiswilltakesomeworktomakesureyouknoweverythingthatisinit.Youdon’twanttobestumpedbysomeinnocuousquestionsfromsomeonereviewingit.Peopleinvestingorlendingmoneywanttofeelthatyouareintopofeveryaspectofthebusiness.
Second,takethetimetowriteanexecutivesummaryyourself.Itisthesectionthatgetsreadthemost.Itneedstoprovideareallyhigh-leveloverviewthatemphasizesthecompany’spotential.Thepersonwhowrotetheplanwilltendtosummarizethedetailinsteadofthevision.Thesummaryneedstoprovidetheessenceofwhatyoudo,forwhomyoudoit,andhowbigthemarketis.Includesomeinformationonthecalibreofthetemyouhaveassembledtoaddconfidencethatthepotentialcanactuallybeachieved.Workthissummaryoverandover,andoveragain–getitdowntoonepage.
Onceyouhavesweateditdowntoonepage,writeanotherversioninoneparagraph.Thissuccinctexpressionofwhatyoudoisinvaluableforletters,telephonecalls,presentations,andgeneralcontactsyouhavewithpeopleaboutyourcompany.Youwilluseitoverandoveragain.
Thispageandoneparagraphwillalsogetplagiarizedbyyourbankersandinvestors.Theyallhaveinvestmentcommittees,quarterlyreports,andpartnerstowhomtheymustexplainyourbusiness.Havingyourwordsattheirdisposalmakestheirlifeeasierandprovidesyouwithsomeconsistencyofmessageinthirdpartydiscussions.
page27
tips For raising capital
Guide to FinAncinG For SociAl enterpriSe
Tip # 3 - Know how much you want. Putsomedetailtothefigure.Ifyouareatanearlystagebeforeprofitability,explainitintermsofthemonthly“burnrate”:thecashyou’reburningmonthlytokeeptheoperationontheintendedscaleandprofitability.Somehow,itisawholelotmoreappetizingtoinvestin“rampingup”growthinsteadoffinancinglosses.Ifitisyourintentiontoexpandanexistingprogramorventure,factorinahealthymarginofworkingcapital.Thinkbig.Makeprovisionsforthepossibilitythatthingswillgomuchbetter–ormuchworse–thanyouexpect.Agood(ifincrediblysimplistic)ruleistotakewhateveramountyourcashflowprojectionsyouneedthendoubleit.
Tip # 4 - Use a professional to help you.Intheunlikelycasethatthatyouloveraisingmoneyandaregoodatit,ignorethistip.Youmayactuallydobetterdoingthejoballbyyourself.However,mostbusinessownersraisemoneyinfrequently,lackconnectionsinthefinancialindustry,anddon’tlikethetask.
Withalittlelegworkyoucanfindaprofessionalwhounderstandspreciselythefinancingyouneed,whetheritisequityorsubordinateddebt.Tofindsuchaperson,askquestions.Forwhomhavetheyraisedmoney?Withwhichinvestorsandlendershavetheyplaceddeals?Phonethesepeople.Askforreferences.Youwilllearnvolumes.
Again,youarelookingforsomeonegood.Aprofessionalcantranslatetheinformationyouprovideintothekindoflanguageafinancierwantstohear.Peoplewhodon’traisemoneyregularlyforclientsinyourindustrywillbelearningonyourtabandwillbeoflessbenefittoyou.
Tip #5 - Pitch the deal in person.Youareaskingforanimportantsumofmoney.Whatyouneedtorememberisthatmostpeopleinthefinanceindustryareverybusyandaretryingtowadethroughscoresofproposalstofindthe“the”goodone.Mailinginyourbusinessplanissheerlazinessandwilllikelygetyounowhere.
Togetyououtofthemorningmailandintotheappointmentbook,pitchthedealinperson.What’smore,pitchittothepersonwhowillbereviewingyourtypeofproposal(i.e.realestateorworkingcapital,seedmoneyorcommercializationetc.)
Tip #6 - Don’t discount equity financing because you are too small.Peopleoftenthinktheyneedtobearelativelylargeorwell-establishedcompanytoattractequityfinancing.Infact,thecurrentsizeofyourcompanyisnotrelevant.Ofinteresttoaninvestorarethepotentialapplicationsofyourtechnology,thesizeofthemarket,andyourvisiontocapturethemarket.Investors’returncomesfromthefuture,notthepresent.Sotheearliertheyfindyou,infact,themore“upside(potentialprofit)theyhave.Butagain,doyourhomeworksoyoucangetourbusinessinfrontofinvestorswiththatearlystageappetite.
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Tip #7 - Treat the task of raising funds like the selling of your products.Wheninsearchofequity,don’timagineyourselfgoingonbendedknee.Approachitasyouwouldthechallengeofsellingtoamajorcustomer.Apartfrompeoplewhohappentoberelatedtoyou,nobodyisinvestingorlendingyoumoneyoutofthegoodnessoftheirhearts.Whensomeonegivesyoumoney,itisbecausethereissomethinginitforthem.Theythinktheycanmakemoneyfromwhatyouareselling,namelyyourcompany.
Ifthefinanciersays“no,”don’ttakeitpersonally.Youhaven’tmadethesale,that’sall.Ithappensallthetime.It’sneitheryounoryourbusinessbeingrejected–theproposalsimplydoesnotfitwhatthis“client”wantsto“buy”.Goontothenextpotentialbuyer.
Ontheotherhand,unlessthesepeopleinvestandlendtheydon’tmakeanymoney.Iftheydon’tmakemoney,theregoestheBMWandtheRolex.Believeme,theyaremotivatedtododeals.
Tip #8 - Find out who has done a good deal lately.Bankersandventurecapitalistsarelikeanythingelseinthisworld:therearegoodonesandtherearenot-so-goodones.Soaskaround.Ifyoucanfindagoodonewhodealsinyourindustryorcanunderstandit,youwillbemilesahead.Ifyoufindyourselfgoingintoaplaceaskingtoseejustanybody,thenyoureallyhaven’tdoneyourhomework.Youwouldn’tpickadoctororevenlawyerthatway.Don’tdoitwhenyouareoutraisingmoney.
Ifyoucangetsomeonewitharelativelystrongbusinesstorecommendafinancier,askyourcontactifyoucansaywhorefereedyou.Sometimesthatassociationitselfwillgetyouabetterfirstimpression.
Tip #9 - Avoid getting hung up on valuation too earlyOnethingaboutventurecapitalistsisthat,bytheirnature,theylovetonegotiatethemechanicsofthedeal.Thebusinesspersonisoftensensitivetothechunkofownerships/hewillhavetogiveup.Itisareapforbothpartiestoworrytoomuchaboutvaluation–abouthowmuchyourcompanyisworth-especiallyintheearlystages.
Therearesomanywaystoresolvevaluationissues,thecomplicationsmightlosethedealifyoupushittoohard.Instead,hookinvestorsonyourpotentialopportunity.Showthemwhereyouaregoing.Ratherthangettingobsessedaboutwhereyouare.
Valuationisgoingtobeanissueeventually.Whenyou’relookingformoney,however,it’smoreimportanttogenerateinterest,togettherightamountofmoney,andtogetitfromtherightpeople.
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StrathconaCommunityDentalClinicoffersbarrier-freedentalservicestochildrenfromacrossVancouver.Althoughtheclinicisaccessibletoanyone,itspecializesinservingimmigrant,low-incomeandaboriginalchildren,whoarestatisticallymorevulnerabletodentaldecay,whichisthemostcommonchronicdiseaseofchildhood.Theprojectoriginatedwithacommunityorganizingprocessthatrecognizedthepoorlevelofdentalhealthoflocalchildrenanditseffectonschoolreadinessandschoolsuccess.
TheStrathconaHealthSocietydevelopedtheClinic.ThesocialmissionoftheSocietyistomeasurablyimprovethedentalandoverallhealthofchildreninVancouver’sDowntownEastside.AccordingtoKylePearce,aSocietyboardmember,theclinicstartedout“withnothingbutafewgoodideasandalotofattitude!”
From1997–2002StrathconaandSeymourelementaryschoolsrankedamongVancouver’sworstfiveschoolsintermsofthepresenceofvisiblecavitiesinkindergartenandgrade5students.Althoughtheprovincial“HealthyKids”programprovidesbasicdentalbenefitsforchildreninlow-incomefamilieswhoarenotcoveredbyfederaloremployersponsoredmedicalinsuranceplans,thesefamiliesareoftennotabletomakeuseoftheprogram.TheStrathconaHealthSocietyidentifiedthatthebarrierstogettingdentalcareincludeaccesstoinformation,languagebarriers,accesstoadentist,andincomerelatedissuesincludingthefactthatmanyparentsworklonghoursatlowpayingjobswithlittleflexibility.
ThechallengefacedbytheStrathconaHealthSocietywastofindawaytomakedentalcareaccessibletolowincomefamilies,tofinddentalprofessionalsinterestedinworkinginthisenvironmentandtodothisisinafinanciallysustainablemanner.TheirsolutionwastoprovidedentalservicesatStrathconaElementarySchoolonafeeforservicebasis.
Financing
Advice, Support and Technical AssistanceDevelopingafinancingstrategyfortheClinicwasachallenge.InitialcredibilitycamefromtheboardoftheSociety,whichincludedthechairofpediatricdentistryatU.B.C.,communityhealthadvocates,schoolprincipals,andparents.
BusinesscredibilitycamewiththesupportoftheVancitygroupofcompanies,whichinitiallyprovidedinformalbutintensive,assistancethroughVancityCommunityFoundation.Thisinitialsupportincludedconfirmationoftheviabilityofthebusiness,supportindevelopingdocumentsforthebusinessplan,andmentorshipinthefirstfewmonthsofoperations.Later,technicalassistancewasprovidedbyaninvestmentmanageratVancityCapitalCorporationwhobecameamemberoftheSociety’sboardofdirectors.
Strathcona Community Dental Clinic
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Start Up OneofthefirsttasksfortheStrathconaCommunityDentalClinicwastofindsuitablespace.Athree-yearlease,witharenewaloptionforanadditionalthreeyears,wasnegotiatedwiththeVancouverSchoolBoard,for1,200squarefeetofspaceinthebasementofStrathconaElementarySchool.
TheStrathconaHealthSocietywasabletodevelopafinancingstrategythatconsistedofbothequity(donationsandgrants)anddebt(loans.)TheinitialinfluxoffundscamethroughtheVancouverAgreementbywayoftheWesternEconomicPartnershipAgreement(WEPA),theLotusLightCharitySociety(aBhuddistcharityorganization)andtheJohnHardieMitchellFamilyFoundation.AloanfromtheVancityCommunityFoundation–acombinationofatermloanandanoperatinglineofcredit–enabledseveralmonthsofoperations.Withthiscapital,theSocietywasabletomoveforward.
Furthermore,beforeopening,theSocietyconductedafundraisingcampaigntoprovideresourcesforfamilieswithnoabilitytopay.Thiscampaignraisedasignificantamountofmoney,primarilyfromLowerMainlanddentists.
Becoming SustainableAtabouttheyearandahalflevel,StrathconaCommunityDentalClinicwasservingover1,100clientsandtheboardrealizedthattherewasagoodchancethatthesocialenterprisecouldbecomesustainable.TheSocietyappliedfor,andreceivedagrantfromVancitySavingsCreditUnion,todostrategicplanningandinvestmentsincriticalareasofthebusiness.Thegrantisbeingusedtobuildbusinessexpertiseandacumen,toworkwithfunders,todevelopcommunityrelationsandtodevelopmarketingandpromotioninitiatives.WhiletheexpectationwasthattheClinicwouldhaveabalancedbudgetbytheendof2005,thatgoalwasachievedinthe2004fiscalyear.
Social ImpactTheStrathconaHealthSocietyprovidesdentalservicesforfamilieswhootherwisewouldnotbereceivingtreatmentorpreventioninformation.Inaddition,itengagesinthreepreventionactivities:aweeklyfluoriderinseprograminwhichalmost90%ofthestudentsareenrolled,class-basedpreventioneducation,andpublichealthpromotioninavarietyofcommunitysettings.
Inthefirstyearofoperations,threeyear-oldpatientswithover10cavities,and9year-oldswhohadneverbeeninadentalclinic,weretypicalpatients.Inaddition,theorganizationquicklyrealizedthatseniorshadtobeincludedasbeneficiaries,sinceseniorsareoftenresponsibleforchildcareinthearea.Initsfirstyearofoperations,theclinicreferredover30childrenforsurgeryundergeneralanesthetic(themostcommonreasonforchildrenreceivingsurgery).Inthepastyear,onlythreesuchreferralsweremade,indicatingthatearlyinterventionishavingapositivepreventiveeffect.
case Study #1
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Inaddition,clinicstaffhastrackedstudentswhoinitiallyhavepoordentalhygiene,andinmostcases,thishasimprovedovertime.Finally,clientsbecomemoreaccustomedtothedentalsetting,andthishasreducedpatientanxietyarounddentaltreatments.
Withthesuccessofthesocialenterprise,andtheimpactonthedentalhealthofchildrenfromlow-incomefamilies,theStrathconaCommunityDentalClinicisbecomingamodelforothercommunitieswithsimilardemographics.
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Atira Property Management Incorporated is licensed under the Real Estate Act and provides a full selection of residential property management services to strata corporations, non-profit and co-operative housing societies, as well as tocommercial units.
ThissocialenterprisewasdevelopedbyAtiraWomen’sResourceSociety.TheSociety’smissionstatementis:
“AtiraWomen’sResourceSocietyisacommunity-basedorganizationthatsupportsallwomen,andtheirchildren,whoareexperiencingtheimpactofviolencecommittedagainstthemand/ortheirchildren.Througheducation,advocacy,andoutreach,Atiraisanactivevoiceinthestruggletoendviolenceagainstwomenandtheirchildren.Ourfeminist-basedphilosophyinformsallourworkwithourselves,eachotherandthecommunity.”
AtiraWomen’sResourceSocietyoffersbothresidentialandnon-residentialprogramslocatedinWhiteRock,Surrey,andtheDowntownEastside.Theresidentialprogramsincludefirststagetransitionhouses,asecondstagetransitionhouse,anemergencyshelterandpermanentsupportedhousing.
AtiraPropertyManagementwasdevelopedinordertocreateasourceofunrestrictedfundsfortheAtiraWomen’sResourceSociety.Itwaschosenasanenterprisebecause,astheresultofmanagingthetransitionhouses,secondstagehousingandsoon,AtiraWomen’sResourceSocietyhad,inthewordsoftheexecutivedirector“accidentallyacquiredexcellentpropertymanagementskills.”
Financing
Writing the Business PlanAtira’sfirstchallengewastowritethebusinessplan.TheSocietyreceivedagrantfromVancitySavingsCreditUnionandusedthefundstohireaco-opstudentfromUBCtoassistthemtodothis.Thestudentandtheexecutivedirectorworkedtogethertodevelopthebusinessplan.
UsingmoneyfromtheSociety’sreservedfunds;Atirathenconductedmarketresearchusing“inhouse”expertise.
Thenextstepwastodevelopthemarketingplan.TheSocietyappliedfor,andreceived,agrantfromtheEnterprisingNon-profitsProgram.AtiramatchedtheENPgrantwithfundsoftheirown,andhiredtheInstituteforMedia,Policy,andCivilSociety(IMPACS)–itselfasocialenterprise–todevelopthemarketingplan.
Atira Property Management Incorporatedwww.atira.ca
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case Study #2
9co-opstudentisauniversityorcollegestudentwhoisworkingintheirfieldforasemester.Theyreceivecreditforthesemester.
Start Up Tocoverstartupcosts,AtiraPropertyManagementIncorporatedreceivedtwoloans:onefromAtiraWomen’sResourceSocietyandonefromVancityCapitalCorporation.
TheSocietyregardsthebusinessandmarketingplansascriticaldocumentsbecausetheyformedthebasisfortheapplicationfortheloanfromVancityCapitalCorporation.Theexecutivedirectorbelievesthatthisloanwasimportant,notonlyforthedevelopmentofthebusiness,butalsobecauseitputthecompanyonthesamefootingasotherpropertymanagementcompanies,thereforedeflectinganycriticismthat,asanon-profitsociety,Atiraenjoyedanunfaircompetitiveadvantage.
ThefirstmanagerofthesocialenterprisewasawomanwhohadbeenaresidentinaprogramofferedbytheSociety.SheenrolledintheRealEstateBoard’spropertymanagementcourseandreceivedapropertymanagementlicense.Tomakethispossible,theSocietypaidhertuitionfeesforthecourseandsalarywhileshetookthecourse.
ThesocialenterprisewaslaunchedonOctober5,2002.
ThedevelopmentstrategyinthebusinessplancalledforthepurchaseofotherpropertymanagementcompaniesaswellasthemarketingoftheservicesofAtiraPropertyManagementIncorporated.In2004,Atirapurchasedtheportfolioofanotherpropertymanagementcompanyandtookonitsstaff.
Becoming SustainableAtiraPropertyManagementisaheadofthetimelinesetoutinthebusinessplan.
InthemonthofSeptember2003,forthefirsttimeandalittlelessthantwoyearsafterthelaunch,AtriaPropertyManagementIncorporatedbroughtinmorerevenuethanitputoutinexpenditures.
Atiracurrentlyearnsaregularmonthlyprofit.Thecompanyintendstolookforotheropportunitiestopurchasesuitablepropertymanagementportfoliosas,andwhen,itcan.
AtiraWomen’sResourceSocietyhasrecentlydevelopedapartnershipwithSocialCapitalPartners,whichithopeswillassistthecompanytogrowtoscale.
ThenextstepsforAtira’ssocialenterpriseare:•torevisethebusinessplan.•todevelopnewthreeyearfinancialprojections.•tomovetheirVancouverofficeintomoresuitablepremises.•todevelopastrategyorpolicyfortheuseoftheprofit.Probablythiswillbeintheformofa
percentagesplitbetweenreinvestmentinthebusinessandfundswhichwillbepassedbacktoAtiraWomen’sResourceSocietytosupporttheSociety’smission.
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Social ImpactTheexecutivedirectorofAtiraWomen’sResourceSocietyreportsthatthepublicitysurroundingthepropertymanagementcompanyhasraisedtheprofileoftheSocietyandtheworkitdoes.
ThepropertymanagementcompanyisnotyetdonatinganymoneytotheSocietyalthoughboardmemberswilldecideatthenextboardmeetingscheduledforMayhowmuchofthecurrentprofitwillbeturnedovertotheSocietyandatwhatinterval.ThepotentialforfundinghashadapositiveinfluenceonthemoraleoftheemployeesoftheSociety.ThedevelopmentofthesocialenterprisegivestheemployeeshopethattheSocietywillbesustainableinthefuture,thatwomenwhohavebeenabusedwillcontinuetoreceivehelp,andthatthestaffwillremainemployed.
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10Binnersarepeoplewhocollectrecyclablebottles,cansetcfromrecyclingbinsorgarbagecontainersandwhoreturnthemrecyclingdepotsinordertoclaimtherefundabledeposit.11LovingSpoonfulisavolunteer-driven,non-partisansocietythatprovidesfreenutritiousmealstopeoplelivingwithHIV/AIDSintheGreaterVancouverarea.
Potluck Café and Catering is a social enterprise which operates in the DowntownEastside of Vancouver.
Potluck’svisionistohelptransformthelivesofindividualsinVancouver’sDowntownEastsidecommunityby:
•servingdailynutritiousmealstoover100arearesidentseachweekday–manyofwhomsufferfromHIV/AIDSorHepatitisC
•runningacommunitykitchenwhichprovidesnutritionalinformationandtheopportunityforarearesidentstoprepareamealandshareamealtogetherwithleftoversbeingtakenhomebytheparticipants
•providingfulltimetrainingemploymentforeleven,formallyatrisk,DowntownEastsideresidents.
Theseprogramsarefunded,almostentirelyfromrevenuesgeneratedbyPotluckCatering,afullservicecatering&eventplanningcompany.
Start Up ThePotluckCaféSocietygrewfromaninitiativeofa“youth-at-risk”employmentinitiativestartedbyUnitedWeCanin1999andfundedbyfinancialcontributionsfrom(then)HRDC.Throughthisinitiativestreetinvolvedyouthweretrainedandemployedtoprovidenightlyhotmealsforbinners10
Thesocialenterprisecameintoformthroughtheassistanceof:
•thedonationofunusedspacebythePortlandHotel•astartupgrantfromthe(then)MinistryofCommunityDevelopment,Co-operatives
andVolunteers,•agrantfromVancouverFoundationtopurchaseequipment•acontributionagreementwithHRDCfortraining
Thefirstcontract–althoughthiswassubsidizedbyPotluck–waswithALovingSpoonfulSociety11forfoodforthosewithHIV/AIDSandHepatitisC.ThiscontractcontinueduntilJulyof2004whenitbecametooexpensiveforeitherorganizationtocoverthecosts.
Potluck Café & Cateringwww.potluckcatering.com
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WhilenewpremisesforPotluckCaféwerebeingrenovated,theenterpriseoperatedfromacommunitykitchen.Duringthistime,theoverheadcostswereverylowandtheenterprisewasabletobuildupacashreserve.
InMarch2002,PotluckCaféandCateringofficiallyopeneditsdoorsinitspermanentpremises.Atthistime,thecateringdepartmentwasservingonlynon-profitorganizations.Thesocialprogramsweresupportedbygrantsandbysomeoftherevenuefromthecateringbusiness.
However,thereweresoonchallenges:
•thetrainingprogramwasinjeopardybecausethecontributionagreementwithHRDCcametoanendinAugust2002.ThesocietycontinuedtobeabletoobtainminimalHRDCfundsthroughtargetedwagesubsidiesandsummercareerplacementprogramsbutthiswasnotsufficient.
•therewasnoassistanceavailablefromtheprovincialgovernment•cashreserves,beingusedtosupplementoperatingcosts,werebeingdepleted.
Newmanagementwasbroughtinandtheenterprisefocuseduponbecomingsustainable.AgrantwasobtainedfromtheEnterprisingNon-profitsProgram(whichtheSocietymatchedwith“in-kind”contributions)fortheredevelopmentofthebusinessplan.
PotluckobtainedtechnicalsupportforwritingthebusinessplanfromaconsultantwithPriceWaterhouseCooperswhoagreedtodomostoftheworkpro-bono.ThispersonlaterjoinedPotluck’sboardofdirectors.
Toward SustainabilityFrom2002to2005,Potluckmovedforwardusingacombinationofgrants,loansandtechnicalassistance.Grantsincluded:
AgrantfromCentralCityMissionforthemealsprovidedtotheDowntownEastsideresidents,thisgrantendedinMarchof2004.AsofApril2004,gamingfundswereobtainedforthemealsprovidedtotheDowntownEastsideresidentsAmulti-yearcommitmentfromtheCo-operatorsGrouptosupportcapacity-buildinginitiativesforPotluck’sbusinesses,AgrantfromVancityCommunityFoundationtopaypartofthesalaryofafulltimefoodservicesmanager,
•Amulti-yearcommitmentfromBCTechnologySocialVenturePartnerstosupportcapacity-buildinginitiativesforPotluck’sbusinesses.Theseincludepartiallysupportingavanpurchase,cateringequipmentpurchases,softwarepurchaseanddevelopmentofamarketingplan
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•GrantfromVancitySavingsCreditUnionforservicedeliverycosts•GrantfromVancityCommunityFoundationforservicedeliverycosts•GrantfromVancouverFoundationforservicedeliverycosts
Loans included:•AnoperatinglineofcreditfromVancitySavingsCreditUnion.AloanfromVancityCapitalCorporationtopayforthebalanceofthecostofasecondvan.(by
2005,Potluckhadthreevans.)
Technical Assistance included: •TheVancitygroupprovidedagreatdealofmoralsupportandtechnicalassistance,particularly
intheearlydays.Continuingassistanceisofferedthroughinformalconsultations.•BCTSVPhasprovidedtechnicalassistanceintheformof•Helpingtodevelopalongtermmarketingplan•Assistingintheimplementationoftacticalmarketingcampaigns•Helpingtodevelopanonlineorderingchannel•Assistingseniorstafftomanagegrowth•Assistingintheimplementationofnewbackofficesystemtools
Sustainability by the end of 2006Since2002,grantfundinghasaccountedforonly10%oftotalrevenuesandonlyoneofPotluck’ssocialprogramsreceivesanyfundingsupport.Thisisthefreemealprogramwhichgets25%ofitsfundsfromgaming.
Bytheendof2004,PotluckCateringofferedadiversemenuforanytypeofdietandforeverythingoccasionandwasbuildingareputationforqualityfoodandservice.Theenterprisehadover700corporateclients,aswellassomenon-profitsandmanypersonaleventclients.Potluckaveragedapproximately$40,000permonthincateringandthisdidnotincludeotherbusinessrevenues.Theirtargetfor2005istoincreasetheserevenuesby20%.
Potluckisnowfacingthedilemmaoftenencounteredbytrainingsocialenterprises.Thischallengeisrelatedtotheabilityoftheenterprisetobecomefullyself-sufficientwhentherearesignificantadditionaloperatingcostsrelatedtoemployingpeoplewithsignificantbarriers.Efficiencysometimesdictatesthatpeoplewithindustryrelatedskillsmustbeincludedfortheventuretobecomeprofitable.Potluck’sboard,management,andadvisorswerestrugglingwiththeissueofhowtobalancetheobjectivesofthesocialmissionwiththedemandsofthemarketplace.
WithfundsfromCEDTAPandWD,Potluckiscurrentlyexploringtwopotentialnewbusinessesthatwillbothexpandthesocialmandateandcontributetothesustainabilityoftheenterprise.
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Social ImpactPotluckiscurrentlyengagedindevelopingaSocialImpactAssessmentproject.Funders,financialinstitutions,academics,governmentrepresentatives,andpractitionersareworkingwithPotlucktodevelopameasurementofsocialimpactthatcanbeusedasamodelbyothersocialenterprises.
Ingeneral,Potluck’ssocialimpactliesintheprovisionofjobstothepreviouslyunemployableandtheprovisionoffoodtothemostneedy.
Wisdom Gained
“ThepathhasnotbeenstraightforwardforusbutIdon’tbelievewearealone.Iworrythattoomanysocialenterprises,likePotluck,receivesupportinstartupbelievingerroneouslythattheywillcontinuetofindsupportalongtheway.Forthemostpart,thishasnotbeenourexperience.Potluckonlybecamea“sexy”organizationtofundagainwhenwebegantobreakevenunderourownsteam.Ibelieveinthevalueofsocialenterprise,however,IguessIamcautiousaboutbeingoverlyoptimisticandinsteadIamreallyfocusedthesedaysonputtingarealisticmessageoutthereaboutwhatsocialenterprisetrulytakes.”
-LizLougheedGreen,ExecutiveDirector
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case Study #3 continued...
The Co-operative Auto Network (CAN) is a non-profit co-operative incorporated to foster car sharing as an alternative to the privately owned automobile. Members share access to over 95 vehicles located in neighbourhoods throughout Vancouver, Burnaby, and North Vancouver. Car sharing provides a flexible alternative to owning a car – whether for close-to-home trips or longer ones. It works best for those who need a car 4 days per week or less often.
CANpaysforallfuels,maintenance,permanentandpermitparking,insurance,BCAAandaircare.Memberspayforthetimeandkilometrestheydrive.Memberspurchaseaone-timerefundableshareof$500tojointheco-operative.Inaddition,familymembersofthemainmemberscanpurchaseassociatemembershipsfor$250.Membersalsopayasmallmonthlyadministrationfee.Thethreecharges:admin,hourlyandperkilometrearesetupinthreeusageplanstomeettheneedsofmembers(high,medium,andlowuse).CANcarsareinsuredforbothworkandpleasureusewiththeco-opholdingtheinsuranceunderafleetplanoption.Aswithprivatelyownedvehicles,carcostscanbeclaimedasbusinessexpenseswhenthevehicleisusedforworkpurposes.
Start Up CANwasstartedinthelate1990’sasastudentprojectatSimonFraserUniversityandisbasedonsimilarsuccessfulmodelsinEurope.Startupfundsincluded:
•AgrantfromVancityCommunityFoundation•AgrantfromTheCo-operatorsInsurance•AnEcoActiongrantfromtheGovernmentofCanada.
The(then)MinistryofCommunityDevelopment,Co-operativesandVolunteers,paidforthelawyers’feesontheunderstandingthatanythingdevelopedwouldbesharedwithothercommunitieswhowantedtodevelopsimilarco-operatives.
Atthispointinthedevelopmentoftheenterprise,therewerethreepeopleinvolved.Thesethreeindividualspooledtheirassetstouseascollateralfortheloanstheyneededtopurchase4-5cars.
Becoming SustainableCANquicklydemonstrateditsviabilityandVancitySavingsCreditUnionandVancityCapitalprovidedloanfinancing.Thisallowedthepersonalloanstoberepaidandtheacquisitionofmorecars.
Co-operative Auto Network (Can)www.cooperativeauto.net
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Dependentuponanumberoffactors,CANcurrentlybothpurchasesandleasescars.TheCo-opisalsoacquiringhybridvehiclestofurtherimprovetheirenvironmentalimpact.
CAN’soperatingcapitalcomesfromthemonthlyfees,feesforservicechargedwhenamemberusesacarandmembershipshares.
Theco-operativebegantobreakevenat65cars.Itnowhas95carsand1800members.
TheCityofVancouveralsoassistsbyallowingco-opvehiclestobeparkedinanypermitzoneintheCityforthesameratesaspermitsfortheWestEnd.
Inaddition,CANhasanalliancewithDiscountCar&TruckRentalstoprovidediscountsformembersgoingmanykilometresinashortperiodoftime.
GrowthCANcontinuestogrowandevolvethroughinnovativenewpartnerships,forexample,withrealestatedeveloperswhoofferCANcarsinsteadofparkingspacesandwithTranslink,whichispartneringon“stationcars”forSkyTrainriders.
Measuring the Social and Environmental ImpactFouryearsafterCANwascreated,theexecutivedirectorwantedtobesurethattheautonetworkwasachievingthegoalsthathadbeensetforitandsoCANaskedfor,andreceived,agrantfromVancityCommunityFoundationtodoasocialaudit.
Inadditiontothegrant,Vancityalsoprovidedtechnicalexpertiseabouthowtoconductasocialaudit.TheauditshowedthattheCo-opwasmeetingitsobjectivesbyreducingthenumberofprivateautomobilesontheroad,improvingthelocalairqualityandreducinggreenhousegasemissions;andpromotingalesscardependentcommunity.
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Eco-Lumber is a co-operative, created in 2001, with the mission “ to promote, develop appropriate markets for, and distribute, members’ eco-certified forest products.”
TheCo-opmembersarepractitioners(communityforests,woodlotmanagers,small-scalesawmills,furnitureandcabinetmakers,andothervalueaddedwoodprocessors)andadvocates.Theseadvocatesincludemanyofthebest-knownandmosteffectiveenvironmentalorganizationssuchasGreenpeaceandtheDavidSuzukiFoundation.
TheCo-oplinkssmall,eco-certifiedwoodsuppliers,suchastheHarrop-ProctorCommunityForest(nearNelson)andIisaakForestResources(aninnovativeNuu-chah-nulthnation-ledforestservicescompanyoperatingexclusivelywithinClayoquotSound,BC)toeco-certifiedmanufacturers.
TheCo-opthenconnectstheproductsoftheseeco-certifiedmanufacturers,suchasflooring,doors,plywood,decking,paneling,loghomepackagesandcustomfurniture,toenvironmentallyconsciousconsumers.Forexample,theHillsideLibraryinPortlandOregonfeaturesIisaakForestResources’ForestStewardshipCertified(FSC)certifiedsidingmanufacturedfromwesternredcedarandprovidedbytheEco-LumberCo-op.
Financing
Developing the Business PlanTheideagrewoutoftheworkofnon-profitenvironmentalorganizations.ItwasthebrainchildoftheexecutivedirectorwhenheemployedbytheSilvaForestFoundation.Theconceptwasdevelopedthroughmeetingsoflikemindedpeople.ThesegatheringsweresupportedbyagrantfromtheEndswellFoundation.
MarketresearchwasfinancedbyagrantfromtheConservationFinancingTechnicalAssistanceProgram,ajointinitiativeofVancitySavingsCreditUnion,EcotrustCanada,andWesternEconomicDiversification.
ThewritingofthebusinessplanwaslargelyfundedbyagrantfromtheCommunityEconomicDevelopmentTechnicalAssistanceProgramThiswastoppedupbyagrantfromtheMountainEquipmentCo-opandsomeoftheexecutivedirector’spersonalfunds.
Canadian Eco-lumber Co-operativewww.ecolumber.ca
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Start UpThepiecingtogetherofstart-upfinancingfortheCo-opwascomplex.Ontheirwebsite,theCo-opthanksseventeenorganizationsandfoundationsfortheirsupport.TheexecutivedirectorsaidthatthesupportersoftheconceptcametotheCo-op,
“…withvariousofferingsintermsofequity,intermsofdirectsupport,intermsofdebtfinancing,andintermsofmentoring.Andoverthe(period)thatwehavebeentryingtogetthisco-opupandrunningallthesepieceshavecometogetherquitenicelyatvarioustimesandallowedustomoveahead.”
Grants•RichardIveyFoundation•DavidSuzukiFoundation•EndswellFoundation•RainforestSolutionProject•WestCoastEnvironmentalLaw•SilvaForestFoundation•GreenpeaceCanada•NaturalResourcesDefenseCouncil
Equity•SaleofinvestmentsharesintheCo-op.ShareswerepurchasedbyRenewalPartners,
Co-opmembers,friendsandfamily.Theexecutivedirectorreceivedsharesinsteadofpartofhissalary.
•Afundestablishedbywithholding5%onpurchases.Thatis,whenaproductispurchasedfromamember,theCo-oppaysonly95%ofthecost.Theremaining5%isputintotrust.Thisequityisusedtosecureloansandthemoneyintrustwillbepaidtothepurchaserswhentheloansarerepaid.
•AloanfromEcotrust(withmoneydonatedfromVancityCapitalCorporation)whichfunctionslikeequityinthattheinterestrateistiedtothenumberofsaleswhenthesereachacertainlevelitwillbefinanciallyprudenttorepaytheloan.
Loans•AnunsecuredloanfromRenewalPartners.•ACommunityInvestmentDeposit(CID)loanfromVancitySavingsCreditUnion.(CIDloansare
securedbymembersofVancity.Memberstakealesserpercentageofinterestontheirdepositaccountssothatthismoneycanbeusedforthegoodofthecommunity.
•AloanfromEcotrustCanadaguaranteedbyEcotrust,RenewalPartnersandatrustaccountsetupbyagroupofenvironmentalorganizations.
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Becoming Sustainable
Marketing AssistanceEcotrustCanadaandVancitySavingsCreditUnionhaveprovidedtheCo-opwithmarketingsupport.
OneofEcotrustCanada’sstaffofferedacontactwhichledtoEco-LumberCo-op’sfirstsale,anFSC-certifiedpolishedDouglasFirfloorinanEastVancouverhome.ItssecondsalerefurbishedtheVancouverofficeofEcotrustwithFSC-certifiedbirchdesktops.TwoEcotrustCanadastaffmembershavealsorecentlypurchasedwoodfloorsfromtheCo-op.
Aswell,VancitySavingsCreditUnionpurchasedlumberfromtheco-optobuilditsfirstgreenbranchontheNorthShoreofVancouver.
GreenpeacehasalsobeenassistingwiththemarketingbylinkingtheCo-optotheirglobalconnections.
Growth and DevelopmentInJune2003,theCo-opopenedashowroomandwarehouse,whichtheyrentinRichmond.
Ayearlater,EcotrustCanadaandVancityCapitalCorporationprovidedfurtherloanstomakeitpossiblefortheCo-optobuyalargeinventoryofeco-certifiedwoodfromIisaakForestResources.Thisloanissecuredbytheinventoryandisatahighrateofinterest.
Next StepsAccordingtotheexecutivedirector,thenextstepsare:
•tosecureanoperatinglineofcredittoallowtheCo-optopurchaseinventorywhichcanbequicklymovedintothemarketplace,
•tobuildupequity,and•tocontinuetoreinventtheCo-opastheylearnwhatworksandwhatdoesnot.
Environmental ImpactTodate,theCo-ophasbeensuccessfulonthreefronts,
•theFSCcertifiedproductsofthepractitionermembersarerecognizedinthemarketplace,thereisanoutletforthem,andtheyarefindingappreciativemarkets.
•those,suchasarchitects,artistsandcraftspeople,whowanttopurchaseFSCcertifiedproductsknowwheretofindit.
•BecausetheyarefindingmarketsforFSCcertifiedproducts,theadvocacygroupscanpointtotheCo-opasademonstrationthateco-forestryasaviablealternativetoclearcutting.
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Vancouver Social Purchasing Portal is a venture developed by Fast Track to Employment (FTE) in partnership with BC Technology Social Venture Partners.
Thesocialportalisaweb-basedapplicationwhichintegratescorporatesocialresponsibilityintopurchaser/supplierrelationshipsandbuildsonexistingcommunitybasedemploymentservicesandcommunitydevelopmentefforts.
Throughthewebsite,businessescangetintouchwithsuppliers(forexample,foodservices/catering,printing,packaging,couriers,promotionalmaterials,buildingmaintenance,recycling,andlandscaping)thatgeneratesocialvalue.Thesocialvaluecreatediseconomicdevelopmentinareasofeconomicdepression,employmentopportunitiesforthehard-to-employandsocialenterprisegrowth.
Forexample,whenPivotalSoftwareneededcaterersforcompanyevents,throughthesocialportal,theychoseCookStudioCatering,aDowntownEastsidecatererthatisalsoatrainingprogramforwelfarerecipientsmovingtoworkandyouthatrisk.
BackgroundThepurposeofFTEistoprovideasupportiveandsuccessfulpathtoemploymentthatassiststheunemployedtore-enterandsustaintheirparticipationinthelabourmarket.
ThegoalofFTEistoguideandfacilitateexistingcommunity-basedtrainingprovidersandeducationalinstitutionsintoacoordinatedandintegratedarrayofservices,usingindustry-designedcurriculumthatisdirectlylinkedtoemploymentopportunities
FTEwasinspiredbyFITIrelandwhich,in1998,developedaconceptforthetrainingoflong-termunemployedpeopleforafull-timecareerintheIT(InformationTechnology)sector.Withtheactivecooperationoflocalgovernment,ITcompanies,community-basedtrainingprovidersandeducators,FITIrelandprovidedIrishcommunitieswithpreviouslyhighlevelsoflong-termunemployment,theopportunitytoprosper.
FTEapproachedtheITsectorinVancouverandfoundthattheFITIrelandmodeldoesnottransferdirectlybecausetherearenoentrylevelITjobsinBC.However,theVancouverITsectorwasinterestedindiscussingotherinnovativemodels.
Vancouver Purchasing Portalwww.sppvancouver.org
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Business Development and StartupTherewereanumberofsourcesofdevelopmentfunds:
•FTE’sretainedearnings•AgrantfromVancityCommunityFoundation•AgrantfromtheVancouverFoundationfordevelopingwaystoincludethenon-profitsector•AgrantfromBCTSVPforeachofthethreeyears,2002–2004(3yearsisthemaximum
periodforBCTSVP)•BCTSVPprovidedtechnicalassistanceintheformof•Systemdesign•Businessconceptdevelopment•Policyandimplementation•Marketingandpromotion•Websitedesignandhosting
TheSocialPurchasingPortalwaslaunchedJune2003.Inlessthanayearover50purchasingpartnersand35supplierswereonlinegeneratingover$300,000oftargetedbusinessactivityandcreatingoveradozenfull-timejobsforyouthatriskandhardtoemploypersonsthroughtheparticipatingsuppliers.
Becoming Sustainable TheSocialPurchasingPortalisnotexpectedtobecomefullyself-sustaining.Therewillalwaysbetheneedforsomefundingsupport.
Currentlythesourcesofincomeinclude:•FundsfromWesternEconomicDiversificationthroughtheVancouverAgreement•BCTSVP•Somefundsfromadvertisinggeneratedbyplacingmemberprofilesonthewebsite
However,theSocialPurchasingPortalwillbecomelesscostlyinthefuture,asFTEisplanningtoexpandintonewareas.ThiswillreducethefixedcostsoftheSocialPurchasingPortal,assomeofthesecostswillbeassignedtootherventures.Social Impact Increased Corporate Social Responsibility
Businessesstillbuyproductsandservicesbasedonprice,quality,andservice.However,theSPPenablesthemtoinjectsocialvalueintotheirbuyingdecisions,givingthemtheopportunitytocontributetotheircommunity.Inaddition,theyhaveareadylabourpoolofqualified,dedicatedindividualsforentry-leveljobssuchasforkliftoperation,officeadministration,cleaning,shipping,woodworking,andrestauranthelp.
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Increased Employment Opportunities for Disadvantaged PeopleTheSPPprovidesnonprofitswhotraindisadvantagedindividualswithanopportunitytomatchtheirclients’skillstoemployerswholookbeyondtheirresumetothequalityoftheworkanddedicationtheseindividualscanbringtotheirjobs,thusincreasingthenumberofhiresfromthegraduatesoftheirprograms.
Increased Customers for Social EnterprisesSocialenterpriseswhichparticipateassuppliersofgoodsandservices,haveaccesstonewcustomerswhichincreasesdemandfortheirproductsandservicesenablingthemtobecomemoresustainableandhireevenmoredisadvantagedpersons.
Increased Social/Community Capital Everyoneinthecommunitybenefitsthroughnewanddevelopingrelationshipsbetweenalltheplayers:non-profits/forprofits,public/private,educationalprograms,andsoon.
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United We Can Bottle Depot is a recycling depot in the DowntownEastside of Vancouver.
UnitedWeCanisaregisteredcharitywhichdescribesitselfas“acharitywhichmeansbusiness.”UnitedWeCancreatesselfsustainingenterprisesthatfocusoncaringfortheurbanenvironmentandwhichcreateincomeandjobtrainingopportunitiesforpeopleoftheinnercity.UnitedWeCaniscommittedtosupportingprojectsthatprovidelongtermsustainabilitywithoutongoingdependenceonpublicfunding.
BackgroundInthelate1980sandearly1990stherewerenobottledepotsintheDowntownEastsideandthelocalretailerswerenotabletohandleallthebottlesandcansthatwerereturnedtothem.First,theydidnothavethespacetostorethevolumeofcontainersbeingreturnedtothem.Second,manyofthecontainerswerenotsoldintheretailoutletstowhichtheywerebeingreturned.Third,thecontainerswereoftenunsanitaryandinappropriatetobestoredatoutletswherefoodwasbeingsold.
Thecurrentexecutivedirectorandanother“binner”approachedaministerfromalocalchurchtoseeksupporttoaddressthisissue.Theyappliedfor,andreceived,asmallgrantfromtheDendorffMorrisTrustFund.Thismoneywasusedforademonstrationeventinwhichpeoplewereinvited,onacertainday,tobringcontainerstoVictorySquareintheDowntownEastsideofVancouver.Peoplewerepaid10centsforcontainersunderalitreand25centsforcontainersoveralitre,toamaximumof$10perperson.Therewasahugeresponseandallexcept$2-300wasusedforrefundsandatrucktohaulawaythecontainers.
WiththismoneyplussomeassistancefromMHR,theUnitedWayandRayCamCommunityCentre,aseriesofworkshopswereheld.Thesemeetingswereessentiallystreetlevelconsultationsabouttherefund/depositsystem.Theresultwasthebeliefthatthatagrassrootsoperatedrecyclingdepotshouldandcouldbecreated.
However,translatingthisideaintorealitytookalongtimeandentailedtruegrassrootsorganizing.Fortunately,theinitiativehadachampion,apersonwhohadlivedonthestreets.Thischampionkepttheinitiativealivewithhisdonationoftime,energy,andoftenmoneyandanon-profitsocietycalledSaveOurLivingEnvironment(SOLE)wasformed.UnitedWeCanBottleDepotwasdevelopedasaprojectofSOLE.UnitedWeCanwaslatercreatedasaregisteredcharity.
United We Can Bottle Depotwww.unitedwecan.ca
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case Study #7
Business Development and Start UpSomeofthesourcesoffundsforthebusinessdevelopmentandstartupwere:
•Contributionagreementwith(then)HRDCfortraining.However,becauseSOLEwasanun-provensociety,thefundswerechanneledthroughtheGastownBusinessImprovementSociety.Acomputerwaspurchasedwiththesefunds.
•AgrantfromtheProvincepaidtherent,broughtacashregister,andasafe.•GrantfromVancityCommunityFoundationforletterhead,signageetc•GrantfromWEDtowritethebusinessplan.•TherewasinitiallyalineofcreditwithVancityCreditUnion•WiththehelpofthesignatureofamemberofVancity,thelineofcreditwasreplacedwithalow
interestloanfromVancityCommunityFoundation•WesternBrewer’sAssociationdonatedatruck
TheBottleDepotopenedinJanuary1995.Atthistime,noneofthebottlerecyclingdepotswereabletomakeaprofitbecauseoftheratestructuresdeterminedbytheconsortiumsestablishedbythemanufacturers.UnitedWeCanBottleDepotstruggledtosurvive,developingotherinitiativessuchasalanecleaningserviceandabikerepairshopwhichcontributedtotheoverheadcosts.UnitedWeCanreceivedhelpfrommanydifferentsourcesduringtheseyearsincludingfundsfromSamuelandSaiydeBronfmanFamilyFoundation,PEACH,BusinessImprovementAssociations,VancouverCity,MinistryofSkillsTraining&Labour/SFUandmanyothers.
SustainabilityWhenthesehandlingfeestructureswerechangedin1999,UnitedWeCanBottleDepotwasabletobreakeven.Itisnowsustainablewithasurplusofincomeoverexpenses.Thesesurplusesaredirectedtogrowingothersocialenterprises.
However,UnitedWeCancurrentlyfacessignificantcompetition.Whereas,atonetime,noonewasinterestedinoperatingarecyclingdepotintheinnercity,therearenowfourinthegeneralvicinity.AsthesedepotsarenotusingaCEDmodel,theymaybemoreefficient.Alsobecausetheyhavemorecapitalandloweroverheadcosts,(theyarelocatedinanareazonedlightIndustrial)theymaybeabletogrowotheraspectsofthebusiness(suchasscrapmetal,paper,etc.)withwhichUnitedWeCancannotcompete.
TheExecutiveDirectoralsocommentedthatUnitedWeCandoesnothavetheskillsetsorbusinessacumenwhichareneededinacompetitiveenvironment.Inaddition,becauseUnitedWecanisnon-profitorganizationandnotaregisteredcompany,theyareaskedtorespondtomanydifferentinterestsincludingacademics,governmentservices,socialandcommunitydevelopmentbodiesandpublicrelations.Thisworkalleatsintothetimeandmoneyoftheorganizationbecauseitisusuallynotcoveredinbudgetsofthoseseekingservice.
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Incubation and DiversificationUnitedWeCanhasdevelopedtwoothersocialenterprises,thelanecleaningservicehasdevelopedfromaprojectintoanenterprise,andrecentlyacommercialcollectionservicehasbeenlaunched.Therearealsoanumberofinitiativesincluding:abikerepairshopandaplantshopwhichdonotcreatesurpluses.
Social Impact
Annually:•$2millionflowsintotheeconomyoftheDowntownEastsidethroughrefundsonrecyclable
containers•$500,000paidinwagesforeverythingfromonedayaweekpart-timeemployeestofulltime
employees.•UnitedWeCanhasmadesignificantcontributionstocommunitydevelopmentintheDowntown
EastsideofVancouver.•UnitedWeCanhasplayed,andcontinuestoplay,asignificantadvocacyrolebothonanindi-
viduallevelandatthesystemslevel.
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Asset: Anitemofvalueownedbyyourbusiness,e.g.cash,stock,equipment,inventory,property,goodwill.
Burn rate: Thecashthebusinessisusingmonthlytokeeptheoperationontheintendedscaleandprofitability.
Capital: Themoneythatisusedformakingprofit.
Collateral or security: Propertyorgoods(assets)pledgedtothelenderuntiltheloanisrepaide.g.equityinyourhouse,car,savings,orequipment.Iftheloanisnotraidthelenderwillseizetheassetandsellittorecovertheunpaidbalanceoftheloan.
Credit: Anarrangementbetweenthebusinessandthelendersorsuppliersandthemaximumamountsthattheywillextendtothebusiness.
Credit rating: Yourhistoryofrepayingloans,creditcards,andotherfinancialobligationsonschedule.
Debt: Anamountthatisowed.
Debt to Equity Ratio.
Equity: Thevalueofyourbusinesswithliabilitiesdeductedfromyourassets.Alsoreferstotheownershipinterestofshareholdersinyourbusiness.
Equity investment: Themoneyaninvestorputsintothebusinessinreturnforanownershipinterest,usuallythroughshares.Theequityinvestorsharesinthegainsandthelossesofthebusiness.
General security agreement: UnderthePersonalPropertySecurityAct,aGeneralSecurityAgreementgivesalendertherighttosecurityoverabroadrangeofassets,receivablesandinventory,aswellasafter-acquiredproperty.(After-acquiredpropertyispropertythatmightbeacquiredinthefuture,butnotownedatthetimeofsigningtheGeneralSecurityAgreement.)ThelendernormallyregistersafinancingstatementwiththePersonalPropertyRegistrytoestablishthepriorityofitsclaimtoassetsrespecttootherlenders.
Going to Scale: Growingthebusinesstothesizeoftheindustrynormortothelargestitcanbeinagivenmarketplace.
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Interest: Achargeforaloan,usuallyapercentageoftheamountloaned.
Liability: Moneyyourbusinessowestootherparties,whichcouldincludesuppliers,lenders,andemployees.
Loan: Asumofmoneylentatinterest.
Principal: Asumofmoneyowedasadebt,uponwhichinterestiscalculated.
Pro formas: Financialdocumentsusingprojections.
Ramping up: Growingabusiness.
Return on investment: Theprofitorlossresultingfromaninvestmentusuallyexpressedasanannualpercentagereturn.
Senior debt: Loanswhichcanbefullyandwhicharemadetobusinesseswhichhaveprovenearnings.
Shares: Theequalpartsintowhichtheownershipofacompanyisdivided.
Shareholder: Apersonwhoownssharesinacompany.
Subordinated debt: Loans,whichareunsecured,butwhicharebasedontheestablishedcashflowofabusiness.Inthecaseofdefault,creditorswithsubordinateddebtarenotpaidoutuntilaftertheseniordebtholdersarepaidinfull.
Term: Thefixedperiodoftimeforwhichaloanismade.
Valuation: Howmuchacompanyisworth.
Working capital: Moneyneededfortheeverydayoperationthebusiness.
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resources
1. CENTRE FOR SUSTAINABILITYhttp://www.centreforsustainability.ca
Mission:toincreasethecapacityandeffectivenessofpeopleandorganizationsengagedinthenon-profitsectorinBritishColumbia.
PartnersinOrganizationalDevelopment(POD)grants.TheseincludePOD,ArtsPOD,andEnviroPOD.ThePODgrantsprovidefundstohireconsultantstogivetechnicalassistancetoagenciesengagedinstrengtheningtheirorganization,adaptingtochangeandrespondingtodiversity.
3. COAST CAPITAL SAVINGS – COMMUNITY ECONOMIC DEVELOPMENT DEPARTMENThttp://www.coastcapitalsavings.com/Community/CommunityInvestments
CoastCapitalCommunityEconomicDevelopmentDepartmentprovidesgrantsandtechnicalsupporttonon-profitorganizationsfortheincubationofsocialenterprisesandtoadvancethecapacityoforganizationsworkingonCommunityEconomicDevelopment.
Priorities•Businessstart-upsandafter-care•Affordablehousingandyouthemployment•Communitycapacitybuilding
3. COAST CAPITAL SAVINGS COMMUNITY FUNDhttp://www.coastcapitalsavings.com/Community/CommunityPrograms/CorporateSponsorship
CoastCapitalCommunityFundprovidesfinancialsupporttocommunityorganizationsthroughsponsorshipsanddonations.
Priorities•Healthandwellness•Education•Environment•Communityservices•Artsandculture
Resources #1Sources Of Funds For Building Organizational Capacity
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resources
Program Criteria•Donationorsponsorship.•Non-profitand/orcharitableorganization.•ProjectmustdirectlybenefitthecommunitiesservedbyCoastCapitalSavings.
Deadline•Applicationsreceivedbythelastbusinessdayofthemonthwillbereviewed
thefollowingmonth.•Applicationsarereviewedbyacommitteeofstaff
4. COAST CAPITAL SAVINGS FOUNDATIONhttp://www.coastcapitalsavings.com/Community/CommunityPrograms/Coast%20Capital%20Savings%20Foundation
CoastCapitalSavingsFoundationprovidesgrantsforyouthinitiativesthatwillhelp“growstrong,confidentandhealthyyoungCanadians.”
PriorityFocusonsupportforinitiatives,programs,andpartnershipsthatbuildorenhanceleadershipskillsforyouth.
Criteria•Organizationmustbearegisteredcharity.•Projectmustpromotethedevelopmentofleadershipskillsforyouth.•Organizationmusthavedemonstratedfiscalresponsibilityandeffectivemanagement.
DeadlinesFourtimesayear:March,June,September,andDecember.
Proposalsforfundingarereviewedonaquarterlybasis.
5. ENDSWELL FOUNDATIONhttp://www.endswell.org
Mission: TobeacatalystforchangeandaninvestorincapacityEndswellFoundationisthecharitablearmofRenewalPartnersandhasthesameCEO.ThefoundationassistsRegisteredBCcharitiesdedicatedtoconservationandrelatedpubliceducationin
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BritishColumbia,thatrespecttherightsofaboriginalpeoplesandtheirtraditionallanduse.Endswelltypicallymakesgrantsforgeneralsupportofthecoreoperationsofexistingorganizations.Specialprojectswillalsobeconsidered.ApplicationismadebyLetterofInquiryfollowedbyanapplicationprocess.Therearetwograntingcyclesayear.6. TIDES CANADA FOUNDATION
http://tidescanada.org
Mission:TidesCanadaFoundationactivelypromoteschangetowardssocialandenvironmentalwell-beingthatisfoundedontheprinciplesof:
•Socialjustice•Broadlysharedeconomicopportunity•Robust,inclusiveandparticipatorydemocraticprocess•Farsightedenvironmentalstewardship
ContacttheFoundationformoreinformation.
7. VANCITY SAVINGS CREDIT UNION GRANTShttp://www.vancity.com/Community/CommunityPrograms/Grants
ThereareseveralgrantsofferedbyVancitySavingsCreditUnionthatcouldassistnon-profitstodevelopsocialenterprises.TheseincludetheCommunityPartnershipProgram(CommunityProjectGrantsandCapacityBuildingGrants),EnviroFundGrants,andtheVancity/RealEstateFoundationGreenBuildingGrantProgram,andtheMillionDollarAward.
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7.1. Community Partnership Program
TheCommunityPartnershipprogramconsistsofCommunity ProjectandCapacity Building Grants.
Priority areas for the Community Partnership Program
Social Justice SocialJusticemeansthepromotionofequityforsociallyandeconomicallymarginalizedgroups.VancitySavingsCreditUnionwillconsiderfundingprojectsandprogramsthat:
•Enhancethecapacityofmarginalizedgroupstoadvocateforthemselvesandparticipateinpublicdecision-makingregardingissuesthataffectthem.
•Eliminateorreducebarrierstoaccesspublicandcommunityservicessuchaseducation,housing,andchildcare.
•Challengehatredanddiscriminationandpromotehumanrightsanddignity.
Economic self-reliance Economicself-reliancemeansbuildingontheinternalstrengthsandresourcesofindividualsandcommunitiestoreduceeconomicvulnerabilityanddependency.VancitySavingsCreditUnionwillconsiderfundingprojectsandprogramsthat:
•Helptoreducepoverty,unemployment,andunderemployment.•Enhancethecapacityofmarginalizedgroupstoaccessfinancialservices,buildfinancial
knowledgeandassets,andcreateeconomicopportunitiesforthemselves.•Increaseaccesstoeducation,training(includingemploymentandpre-employmenttraining)
andotherservicesthathelptobuildeconomicopportunity.
Environmental responsibility Environmentalresponsibilitymeansimprovingsocialandeconomicwellbeingthroughthecreationofhealthyecosystems.VancitySavingsCreditUnionwillconsiderfundingprojectsandprogramsthatcreateawarenessandsolutionsthathelpto:
•Protectandrestoreindigenousspeciesandhabitats.•Preventthereleaseofsubstancesthatdamageair,water,earth,oritsinhabitants.•Improveairquality,includingthepromotionofalternativemodesoftransportationsuchas
publictransit,cycling,andcarco-operatives.•Conserveenergyandpromoteenvironmentallysafeandsustainableenergysources.
Preference given to•Projectsandprograms,whichintegrateoneormoreofthethreepriorities.•Partnershipsbetweenorganizationsthatenhancecooperation.•Projectswhichimprovetheeffectivenessofexistingprojects.
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Community Project Grants •Grantsofupto$10,000.•Designedtosupportprojects.•Onegrantperorganizationinacalendaryear.•Applicationdeadlines:4peryeare.g.January,March,May,August,November.
Capacity Building Grants •AvailableonlytoVancitySavingsCreditUnionmembers.•Designedtosupportorganizationsthemselves,ratherthanspecificprojects,toassistwiththe
developmentofbusiness,financialand,fundraisingplanning,aswellasthetechnology/computertrainingrequiredtobuildfinancialsustainability.
•Grantsofupto$10,000.•Onegrantperorganizationinacalendaryear.•Applicationdeadlines:4peryeare.g.January,March,May,August,November.
7.2 Envirofund Grants
•Thepurposeistoencouragepositive,actionablesolutionslocalenvironmentalconcerns.•Thefundsarebasedonaminimumof5%ofVancityVISA*cardprofitsand
individualdonations.•Grantsofupto$40,000.
Priorities•Eachyear,VancityEnviroFund™VISAcardholdersvoteonwhichissueareastheEnviroFund™
willsupport.Thevotesaretabulatedandthetopthreeissueareasaredetermined.ThesearepostedonthewebsiteinMayeachyear.
Program Criteria •Local:TheprojectmusttakeplaceintheLowerMainland/FraserValleyorGreaterVictoriaareas
anddirectlybenefitourlocalcommunities.•Action-Oriented:Althoughtheprojectmayincluderesearchandeducationcomponents,the
primaryfocusshouldbeontakingconcretestepswhichworktoresolvelocalenvironmentalproblemsandhelptodevelopsustainablecommunities.
•InnovativeAlternative:Thefocusoftheprojectshouldbeonthedevelopmentandimplementa-tionofaninnovativeprojecttoaddressoneoftheyear2004issueareaschosen.
•NotforProfit:Theprojectmustbecarriedoutthroughanot-for-profit,charitablenon-govern-mentorganization,orcooperative.
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Preference are given to projects that also meet the following criteria:•Ongoing:Theprojectwillcontinuebeyondtheoneyearperiodforwhichfundingisrequested.•CommunityBenefits:Theprojecthassocialbenefitstothelocalcommunity,suchasjobcre-
ationfordisadvantagedgroups,communityeconomicdevelopmentoryouthtrainingopportu-nities.Theprojectincorporatescommunityparticipationintheplanningandorganizingoftheproject.
•EcologicalImpact:projectshavethepotentialtogeneratethesignificantenvironmentalim-provements.
•CreditUnionMembership:PreferenceisgiventogroupsthataremembersofVancitySavingsCreditUnionoranothercreditunion.
Grant Deadline •ThedeadlineisannouncedinMaywhenthepriorityissuesareannounced,Itisusuallyinthe
falloftheyear.
7.3 Vancity/Real Estate Foundation Green Building Grant Program
•ThepurposeistominimizetheimpactsofclimatechangeandtoimprovesustainablelandusepracticeswithanoverallgoaltoreduceCO2emissions.
•Thereis$100,000availableeachyear.•Grantsofupto$50,000.
Priority Areas •InnovativeBuildingRenovations/Retrofitsthatreducetheenvironmentalimpactsassociated
withthebuildingandoperationofnon-industrialbuildings.Projectelementsthatwillbeconsid-eredforfundingare:
•Design•Equipment/technologypurchases•Project-relatedresearch•Structuralchanges•Siteimprovements
TheadvancementofPolicyorRegulatoryChangewiththepurposeofremovingbarriersimpedingthedevelopmentofgreenbuildingsandtheincorporationofgreenbuildingtechnology.Projectelementsthatwillbeconsideredforfundingare:
•Research•Multi-stakeholderconsultations/meetings•Policydevelopment•Publicationofmaterials/casestudies
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Program Criteria•Charitableorganizations,not-for-profitorganizations,orcooperatives.•Aneducationalcomponentwhichaimstoencouragegreenbuildinginitiativesbysharingthe
benefitsoftheprojectwiththepublicandotherpractitioners.•Partnershipsbetweenorganizations(government,businessandnot-for-profit)areencouraged.
Grant Deadline Thedeadlineforsubmissionsisintheearlyfall.
7.4 Million Dollar Award
Thisawardishandedoutannuallytoanon-profitorganizationforamajorprojectthatsupportsthesocial,environmentaloreconomicwellbeingofthecommunity.
•Fundingmaygotowardsdevelopment,capital,operational,orendowmentneeds.•Opentonon-profitorganizationsinVancouver,theLowerMainland,FraserValley,andVictoria.
Theprocessisusuallythatatwo-pageletterofintentissubmittedinthespring;acommitteeofstaff,creditunionmembers,andboardmembersselectashortlistoforganizationswhichareinvitedtosubmitaprojectproposal;andfinallyVancitymembersvoteonashortlistoffinalistsinthefall.
8. VANCITY COMMUNITY FOUNDATIONwww.vancity.com/Community/AboutUs/Subsidiaries/VanCityCommunityFoundation
Mandate:toprovidegrantsandcommunitylendingintheareaofcommunityeconomicdevelopment.
PrioritiesfortheFoundation•AffordableHousing•Communitybuildingandmobilization•CommunityEconomicDevelopmentOrganizations•EmploymentDevelopment•Non-profitSector•Reachingnewcommunities•SocialEnterprise
Application deadlines•ApplicationsareconsideredattheFoundation’squarterlyBoardofDirectors’meetingswhich
areheldinMarch,May,SeptemberandNovemberofeachyear.•ApplicationsshouldbereceivedatleasteightweeksbeforetheFoundation’squarterly
boardmeeting.•Thereisnodeadlinefortechnicalassistance.
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8.1. Grants
•Annualgrantsbudgetof$175,000.•Grantstendtorangefrom$500to$20,000.•Looksforlongtermrelationshipswithgrantrecipients.•Willfundnewinitiativesandtheexpansionofsuccessfulexistingprojects.
8.2. Loans
•Guaranteedloansandlinesofcredit(typically$10,000to$100,000)•Mortgages•LoanPools•Low-interestloans(typically$10,000to$100,000)
8.3. Technical Assistance
•Ofteninconjunctionwithaloanorgrant.•TheFoundationusesitsownstaff,orbrokersorpurchasestheresourcesofothers,toprovide
non-profitswithtechnicalassistance.
9. VANCOUVER FOUNDATIONhttp://www.vancouverfoundation.bc.ca
Mission: Throughthegrowthandstewardshipofpermanentendowmentfundsandthedistributionofincometoabroadrangeofeligibleorganizations,VancouverFoundation,inmeetingcommunityneeds,providesphilanthropicleadershiptoimprovethequalityoflifeforallBritishColumbians.
VancouverFoundationisaphilanthropicnon-governmentalcommunityfoundationwhichoperatesprimarilyasapermanentcollectionofendowedfunds.
Relevantfundsare:•AnimalWelfare•ArtsandCulture•Children,YouthandFamilies•Education•Environment•HealthandSocialDevelopment
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1. BC TECHNOLOGY SOCIAL VENTURE PARTNERS (BCTSVP)http://www.bctsvp.org
Mission:Tosupportinnovativenon-profitgroupsservingchildren,womenatrisk,andpeoplelivinginVancouver’sDowntownEastside.
BCTechnologySocialVenturePartnersisacharitablefoundationcreatedbyindividualsinBC’stechnologyindustriesandusesa‘venturephilanthropy’approachtoprovidingmoneyandbusinessexpertisetoentrepreneurialnot-for-profitorganizations.
BCTSVPhastwograntcycles,oneinthespringandoneinthefall.Averageannualgrantstoorganizationsareintherangeof$30,000,withapossibilityofmulti-yearcommitments.
BCTSVPhashelpedgroupswith:•Strategicplanning•Boarddevelopment•Facilitiesplanning&acquisition•Marketingplanning•InformationTechnologyplanning&implementation•Fundraising&RevenueGeneration
2. COMMUNITY ECONOMIC DEVELOPMENT TECHNICAL ASSISTANCE PROGRAM (CEDTAP)http://www.carleton.ca/cedtap
Mission: Toenhancethelegitimacyandeffectivenessofcommunity-basedorganizationsengagedincommunityeconomicdevelopmentbysupportingactivitiesthatwill:
•strengthentheircapacitiesand•increasethevisibility,knowledge,coherenceandresourcesoftheCEDsectorasawholein
cooperationwithotherorganizationswithsimilarinterests
CEDTAPissupportedbytheJ.W.McConnellFamilyFoundationandCarletonUniversity.ItisCanada’slargestnon-profit(non-governmental)grantingagencyinthefieldofCommunityEconomicDevelopment(CED).CEDTAPprovidesgrantstoearlystageandmaturecommunity-basedorganizationsandalsopromotesactivitiesthatstrengthentheCEDsectorasawhole.Thegrantsareseedmoneyandthereforeotherfundingwillberequired.
Resources #2 Sources Of Funds For Business Development
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CEDTAPsupportsearlystageandmatureCEDO’sinthreedifferentareas:- technicalassistance- exchanges- technologicalenhancement–computerresourcesandtechnicalsupport
neededtoengageinCED.Inaddition,supportisprovidedtoemergingCEDorganizations,ormarginalizedgroupsnotyetinvolvedinCED,priortodevelopingafull-scaleinitiative.
3. ENTERPRISING NON-PROFITS PROGRAM (ENP)http://www.vancity.com/Community/AboutUs/Subsidiaries/VanCityCommunityFoundation/EnterprisingNon-ProfitsProgram
ENPisafundingprogramthatprovidesmatchinggrantstonon-profitorganizationsinBCwhoareinterestedinstartingorexpandingabusiness.ItisajointfundingprogramofUnitedWayoftheLowerMainland,VancityCommunityFoundation,CoastCapitalSavingsCreditUnion,VancouverFoundationandWesternEconomicDiversificationCanada.
Program Goals •Tosupportnon-profitorganizationstodevelopenterpriseswhicharelinkedwiththeircharitable
mandateandcontributetoorganizationalsustainability.•Toincreasethecapacityofnon-profitorganizationstoimprovesocioeconomicconditionsin
theircommunitiesthroughthecreationofemploymentortrainingopportunitiesand/oren-hancedprogramprovision.
CriteriaInordertobeeligibleforfunding,anorganizationmust:
•beanon-profit,•haveitsbase,activitiesandbenefitsinBritishColumbia,•haveanannualbudgetofgreaterthan$200,000peryearandpermanentstaffpositions,•commitmatchingfunds(cashorin-kind)forthebusinessand/ororganizationaldevelopment
process,and•usethefundstopayforprofessionalfeesofaconsultantorresourcepersonand/orstaffcosts
andresourcesdirectlyrelatedtobusinessplanningandorganizationaldevelopmentactivities.
Funding Available Theprogramprovidesbetween10and15organizationsannually,matchinggrantsofupto$10,000.
Activities Funded Activitiesmustbedirectlyrelatedtobusinessplanningandorganizationaldevelopment.
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Business Development Planningandresearchactivitiestosupportthedevelopmentorexpansionofabusinessventure,suchas:
•businessfeasibilitystudies•businessplandevelopment•marketresearchstudiesand/ormarketingplans
Organizational Development Theseactivitiesmustbeinrelationtothepreparation,launchorexpansionofabusinessventure,suchas:
•activitiesaimedatbuildingorganizationalunderstandingandsupportforchange•facilitationofstaff/boarddevelopmentrelatedtospecificissuesofbusinessmanagement•developmentofplansinspecificareassuchas:staffing/management,strategicplanning,risk
managementandfinancialmanagement•developmentofnewpolicies,procedures,systemsandtoolsformanagementofthebusiness
Proposal Assessment Criteria Keycriteriaconsideredbythefundingpartnersinclude:
•Theproposedenterpriseisclearlyrelatedtothecharitablemandateoftheorganization.•Theproposedenterprisecontributestocommunitythroughemploymentcreation,trainingop-
portunitiesand/orenhancedprogramprovision.•Thereisevidencethattheorganization(includingtheboardofdirectors)hasbeguninitialorga-
nizationalassessmentand/orbusinessplanningprocesses.•Theproposaldemonstrates:i)thebusinesshasthepotentialtogeneraterevenueandii)the
organizationhasidentifiedapotentialmarketforthebusiness’productsand/orservices.•Thereiscommitmentfromtheorganization’sboardofdirectorstopursuebusiness/enterprise
activities.•Thereiscommitmentofmatchingdollars(cashandin-kind)fortheprogramgrant•Thereisevidencethattheorganizationhasthecapacityandthewillingnesstocommitaddi-
tionalfundstoimplementtheenterpriseonceaviableplanisinplace.•Astaffperson(orpersons)hasbeendedicatedtotheinitiative.
Application Process •Grantapplicationsareacceptedtwotimesperyear,inspringandfall.•Organizationsarerequiredtoattendaone-dayorientationsessionbeforeapplying.Grantap-
plicationformsaremadeavailabletoparticipantsduringthesession.
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The Orientation Session Therearetwoorientationsessionsperyearwithgrantapplicationsgenerallydue6to8weeksafterthesession.Organizationsthatdonotapplyforfundingdirectlyfollowingtheorientationsessiontheyattendareeligibletosubmitgrantapplicationsinsubsequentfundingcycles.
Theorientationsessionprovidesparticipantswithinformationthatwillassistthemto:•assesstheirorganization’sreadinesstolaunchanenterprise,•identifyorganizationalandbusinessdevelopmentneeds,and•learnmoreaboutthefundingprogramandtheapplicationprocess.
Thesessionitselfincludes:•Adiscussiononthenatureandtypesofnon-profitandsocialenterprises.•Adiscussionoflegalandstructuralimplications,includingCanadaCustomsandRevenue
Agencyguidelines,inregardstocharitiesandenterprises.•Anoverviewofkeyfactorsofsuccessinnon-profitenterprise,includingorganizationaland
businessdevelopmentissues,andkeyrisksandrealities.•Presentationsbyrepresentativesofexistingenterprisingnon-profits.•Discussionofbusinessideasofparticipatingorganizations.•AnoverviewoftheENPprogramhistory,initiativesfundedbytheprogram,programguidelines,
andapplicationprocess.•Adiscussionofnextsteps,includingtipsforfindingaconsultant,reviewofresourcesavailable,
andgeneralquestionandanswer.
4. VANCITY COMMUNITY FOUNDATIONwww.vancity.com/Community/AboutUs/Subsidiaries/VanCityCommunityFoundation
Seeabove
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EQUITY FINANCING
1 THE CO-OPERATORS GROUP: CO-OPERATIVE DEVELOPMENT PROGRAMhttp://www.cooperators.ca/english/in_the_community/CDF_fund/content.html
EachyearTheCo-operatorsmakesavailable$100,000fortoco-operativesandsimilarorganizations.
Criteria •Inordertobeconsideredforaninvestment(maximum$25,000),applicantsmustprovidea
satisfactoryplan,budgetandbusinesscase,referencesandothersupportingmaterial.•Ifaninvestmentismade,TheCo-operatorswillrequiresharesorotherevidenceofthe
investment,andmayrequireappropriatesecurity.•Sincetheprimaryresponsibilityforfinancingtheco-operativebelongstothemembers,
TheCo-operatorsportionofthetotalfinancingwillalwaysbeaminority.2. RENEWAL PARTNERS
http://www.renewalpartners.com
RenewalPartnershasacloserelationshipwiththeEndswellFoundationandhasthesameCEO.
RenewalPartnersworkwithentrepreneursandpartnerswhoarehighlymotivatedbothtomakemoney,andtoprovidesociallyresponsibleproductsorservicesthatenhancetheircommunities.Theylookforventuresthathavestrongpotentialtobecomelucrativealternativestotraditionalenterprises.
Thebusinessesinvestedinaregenerallysmall(under$10millioninsales).Investmentscoverabroadrangeofindustries,representingacrosssectionofbusinessesworkingtowardsaconservationsociety:food,shelter,communications,education,nature,andenvironment,“green”consumerproducts.Theyfocusprimarilyonsectorstheythinkmaybeunderservedbyconventionalfinancingsources.
RenewalPartnersbecomesinvolvedatanearlystageandmakesalong-termcommitmenttotheenterprise.Theyprovidementoring,advice,andnetworkingandassistancewiththedevelopmentofinnovativeemploymentandcommunitypractices.
Theydobothconvertibledebtandequitydeals.RenewalPartnersrarelyconsidersdealsinwhichtheyaretheonlyinvestor.Theydonotseekacontrollingpositioninthecompaniesinwhichtheyinvest.However,theydoreservetherighttoappointaboardmember.
Resources #3Sources Of Funds For Start Up Costs
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RenewalPartnersexpectstheirinvestmentstobeprofitablewithinareasonablenumberofyearsrealistictotheindustry.Theydeterminewhatconstitutesareasonablereturnonacase-by-casebasis,balancingtherateoffinancialreturnwiththesocialbenefitstheyestimatetheinvestmentmayyield.
ThefollowingstepsoutlinethegeneralprocessRenewalPartnersfollowbeforeinvestinginabusiness:
•InitialContact:E-mailormailabriefoutlineoftheproject.•BusinessPlanandProposal:Oncetheyhavedeterminedthatthereisamatchintermsofmis-
sion,productorserviceandmanagementphilosophy,theyrequestaformalbusinessplanandfundingproposal.Uponreviewofthesematerials,theythenmeetthecompany’sprincipalstoengageinanin-depthdiscussionoftheproject.
•DueDiligence:Inordertoestablishthesoundnessoftheinvestment,theyengageinduedili-genceactivities,whichcanvarydependingonthesizeofthecompanyandthecomplexityandamountoftheinvestment.Thisprocessinvolvesadetailedanalysisofthecompany’sbusinessplan,financialsystems,personnel,trackrecord,andkeyadvisors.
•LegalDocumentation:Whiletheirbusinessrelationshipisfriendly,personal,andofteninformalinstyle,theydorequirefulllegaldocumentation.Eachsocialenterprisemustseekindependentlegalandaccountingadvice.
•DealClosing:Oncealldocumentsareagreeduponandsignedbyallparties,fundsareissuedimmediately.
Theperiodfrominitialcontacttoclosingthetransactioncantakeanywherefromthreetoninemonths.
3. SOCIAL CAPITAL PARTNERShttp://www.socialcapitalpartners.ca
SocialCapitalPartners(SCP)fundsbusinessesthatdemonstratethedisciplineandcompetitivespiritofaprivatesectorcompanywhilestrivingtogenerateoutstandingsocialoutcomesfortheindividualstheyemployandcommunitiestheysupport.Theylookforbusinessesthatdemonstratethefollowingcharacteristics.
•Hirethemajorityofemployeesfromaneconomicallydisadvantagedcommunity.•Provideskillsandexperiencethatpromotelong-termemployment.•Considermultipleneedsofthetargetpopulation(e.g.housing,counselingetc.)•Competesuccessfullywithinastrongsegmentofthemarket.•Haveaplantoreachbreakevenorprofitabilitywithin3years.•Havearealisticshort-termgrowthplanthatinvolvesemployingatleast12individuals.•Havearealisticlong-termgrowthplanthatinvolvesemploying20ormoreindividuals.•ArecapableofmeetinganyrepaymentobligationstoSCPandotherfinanciers.•Haveanoutstandingmanagementteamthatiscapableofcarryingouttheplan.
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Todeterminesuccess,SCPmeasuresboththeprogressofthetargetemployeestowardasustainablelivelihoodandofthesocialenterprisetowardprofitability.Theyconsidertheinitiativeasuccesswhenboththetargetemployeeandthesocialenterprisebecomeself-sufficient.
InitiallySCPrequiresabriefexecutivesummarythatoutlinesthebasicelementsofthesocialenterprise.Theexecutivesummaryshoulddescribethebusinessconcept,theneedthatitfulfillsinthemarket,andhowthebusinesswillbecomefinanciallysuccessful.Itshouldalsoprovideadescriptionofhowthebusinesswillfulfillitssocialmissionbydetailinghowanat-riskpopulationwillbeemployedbythebusiness.
SCPwillcontactthoseentrepreneursororganizationsfromwhomtheyareinterestedinseeingafullbusinessplan.Ultimately,SCPmakesitsfinancingdecisionsbasedonacarefulreviewofafullbusinessplanandanin-depthduediligenceprocess.
4. WATCH FOR A NEW SOCIAL VENTURE CAPITAL FUND
Atthetimeofwritingthisguide,withtheleadershipoftheVancouverFoundationandwithanumberofpartners,anewventurecapitalfundwasbeingdevelopedwhichwillprovidebothcapitalandtechnicalassistancetosocialenterprises.Itisexpectedthatthisfundwillbepilotedin2005.
DEBT FINANCING
1. CCEC CREDIT UNION
CCECisasmallcreditunionfoundedbytheCommunityCongressforEconomicChangeSociety,whichiscommittedtocommunityeconomicdevelopment.Itisaclosedbondcreditunionandmembersmustbenon-profits,co-operatives,orindividualswhoaremembersofnon-profitorganizationsorco-operatives.CCEChasagreatdealofexpertisewithcommunitybasedorganizations.Althoughallloansmustadheretotraditionallendingrequirements,CCECcanbeverycreative.Forexample,theloanofonecommunityorganizationwassecuredbypersonaldepositsof$500by40members.
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2. COAST CAPITAL SAVINGS: RISING TIDE LOANS AND TECHNICAL ASSISTANCEwww.coastcapitalsavings.com/Community/CommunityInvestments/Microcredit#TargetArea3a
2.1 Rising Tide 2 Loans
CoastCapitalhasaportfoliocalledRisingTideLoans,whichareavailableforcommunityinitiativesandlocalsmallbusinessventuresthatdonotqualifyforconventionalcredit.Theseloansfocusonthreemainareas:
•Businessstart-upsandafter-care•Affordablehousingandyouthemployment•Communitycapacitybuilding
TherearethreetypesofloanswithRisingTide.RisingTide2loansareforSocialEnterprises.
Loan Amount•Upto$150,000
Loan Rate•Interestratesfortheseloansaregenerallyhigherthanconventionalrates,reflectingthead-
ditionalrisktheintentiontofinanceinitiativesthatdonothaveaccesstoalternativesources.
Priorities•Initiativesthatshowbenefitstothecommunity’seconomic,socialorenvironmentalwell-being.
Criteria•Organizationisamember/clientofCoastCapitalSavings.•Thereisafinanciallyviablebusinessplan(includingmarketanalysis,operationaldetailsand
financialinformation(specifically,acashflowstatement)withdemonstratedbenefitstothecommunity’seconomic,socialorenvironmentalwell-being.
•Proofofcommunitysupport(2lettersofreference,documentationoutliningsupport.)•Proofoforganization’sowncontributiontothebusiness(financialorin-kind.)
2.2 Technical Assistance
CoastCapitaloffers“Pre-andAfter-Care.”
Pre-CareIfanorganizationhaswhatappearstobeasoundbusinessideaandabusinessplanwhichmayqualifyforaloanbutwhichneedsfurtherdevelopment,CoastCapitalwillprovidepre-carefortheorganization.Pre-caremeansthatCoastCapitalwillassisttheorganizationtopurchasetechnicalassistance.However,pre-caredoesnotguaranteethattheorganizationwillreceivealoan.
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After-CareIfanorganizationhasreceivedaloanfromCoastCapitalbutisrunningintoproblems,orispreparingtomovetothenextstageofdevelopment,thecreditunionwillassisttheorganizationtoobtaintherequiredtechnicalassistance.
Consulting Hours PurchasedIngeneral,CoastCapitalwillpayforthefirstthreeconsultinghoursand50%ofthenext4hours.Anyfurtherhoursarepaidforbytheorganization.
3. COMMUNITY FUTURES DEVELOPMENT CORPORATIONSwww.communityfutures.ca
LoansandTechnicalAssistance
FundedbyWesternEconomicDiversificationCanada,CommunityFuturesDevelopmentCorporations(CFDCs)throughoutruralBC,offerdebtfinancingandtechnicalassistancegearedprimarilytowardshigh-riskventuresinruralareas.(TheexceptionisPartnersinCommunityHelp(PEACH)intheDowntownEastsideofVancouver,whichoffersaformofcommunitydebtfinancing.)
CFDCsmakeloansofuptoamaximumof$125,000tonewandexistingbusinesses.LoansreceivedfromaCFDCarefullyrepayableatcompetitiveinterestrates.
BecausetheboardsofCFDCscomefromthecommunity,theloanstheymakereflectlocalknowledgeoftheneedsofthecommunity.CFDCsarebecomingincreasinglyawareofthefinancingneedsofsocialenterprise,althoughsomeboardsaremuchmoreconservativethanothers.
4. ECOTRUST CANADAhttp://www.ecotrustcan.org
4.1 Loans
EcotrustCanadahasaNaturalCapitalFundthatsupportsaBusinessLendingprogram.Theyoffernon-bank,higher-riskloanstoentrepreneurs,cooperativesandnon-profitgroupsthatincorporateecologicaland/orsocialvaluesintheiroperationsorthatpromotejobsanddiversificationinruralandAboriginalcommunities.
Theylookatabusiness’triple-bottomline,assessingwhetheritpromoteseconomicopportunities,protectstheenvironment,andfosterssocialequityinB.C.’scoastalcommunities.
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Theyprovidetermloansofupto$500,000for:•workingcapital,•equipmentandotherfixedassets,•newproductionandservicecapacity,•productormarketdevelopment.Interestratesaresettoreflectrisk.Flexiblerepaymentschedulescanbetailoredtofitthe
venture’scashflow.
4.2 Technical Assistance
Ecotrustexpertiseiswithconservation-baseddevelopmentinforestry,shellfishaquaculture,fisheries,tourism,energy,andrealestatedevelopment.TheyhaveextensiveexperienceworkingwithFirstNationsandlocalcommunityenterprisesupanddowntheB.C.coast.
Theyofferasuiteofconsultingservicesinsupportoftheseeffortsincluding:•Marketresearchandanalysis,•Businessplanning,•Feasibilitystudies,•Strategicplanningforcommunityeconomicdevelopmentandresourcemanagement,•Management,trainingandproductdevelopmentservices,•Networkingservices–promotingcontactandexchangewithotherentrepreneursworkingin
theconservationeconomy.
5. VANCITY SAVINGS CREDIT UNION
SharedGrowthDeposits.SavingsCreditUnionofferstwotypesofSharedGrowthTermDeposits–CashableorFixedTerm,whichsupportloanstosociallyresponsiblebusinesses.
Inaddition,theinvestorcanreceiveamarketrateofreturnorcanchooseanyratebelowmarket.Theinteresttheygiveupispooledandthenusedtoprovideaccesstocredit,orreducedinterestonloansforsocialenterprises.
6. VANCITY COMMUNITY FOUNDATIONwww.vancity.com/Community/AboutUs/Subsidiaries/VanCityCommunityFoundation
Referto5.0VanCitySavingsCreditUnion
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EQUITY FINANCING
1. RENEWAL PARTNERSReferPage65
2. SOCIAL CAPITAL PARTNERS RefertoPage66
3. A NEW SOCIAL VENTURE CAPITAL FUNDRefertoPage67
DEBT FINANCING
1. VANCITY SAVINGS CREDIT UNIONRefertoPage70
2. VANCITY CAPITAL CORPORATIONwww.vancitycapital.com
VancityCapitalCorporation,specializesingrowthfinancing.Theyprimarilyprovidehigherrisk,repayablegrowthcapital—knownalsoassubordinateddebtandmezzaninefinancing—tosmallandmedium-sizedBC-basedorganizations.Startupcapitalisnotavailable.TheCapitalCorporationisinterestedtalkingtoanyemergingsocialenterpriseswithsignificantpotentialforgrowthinachievingsocial,environmentalandfinancialimpacts.
Similartoequityinvestments,growthcapitalisusuallynotsupportedbycollateralassets.Likeconventionaldebt,growthcapitalrequiresregularmonthlypaymentsofprincipalandinterest.
VancityCapitalCorporationsupportsnon-profitentitieswithhigher-risklending,whilealsotakingintoaccountthenon-financialbenefitstobeachieved.Whilegenerallythistypeofunsecuredventurecapitalinvestmentrequiresmuchhigherratesofreturn,theygenerallypricetheirloansonlyslightlyhigherthanconventionalfinancing,soastomakethemaccessibleforventureswhichmaynothavetheabilitytopayfullyriskadjustedrates.
Inpart,theyareabletoprovidethisfinancingbecauseofarisksharingagreementwiththeFederalGovernmentthroughWesternEconomicDiversification.The2004federalbudgetopenedtheirGrowthCapitalProgram,alongwithallothersmallbusinesssupportprograms,to“socialeconomy”enterprisesaswellasconventionalbusinesses.
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Loan RatesWithnon-profitentities,theloanrateschargedbytheCapitalCorporationgenerallystartatprimeplus3%.
Loan AmountsLoansrangefrom$50,000toover$1million.
Technical AssistanceLimitedtechnicalassistanceisavailablefromCapitalCorporationstaff.ItisusuallyprovidedifasocialenterprisehasthepotentialtoobtainaloanfromtheCapitalCorporationorifanexistingclientneedsassistanceinordertobesuccessful.
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Othersourcesoffundsworthexploringinclude:
CANADA
FEDERAL GOVERNMENT•WesternEconomicDiversification•HRSD•NaturalSciencesandEngineeringResearchCouncil•IndustrialResearchAssistanceProgram(IRAP)•NationalResearchCouncil(NRC)•CMHC(MortgageInsurance,RRAPGrants)•CanadaCouncil•IndianandNorthernAffairesCanada(INAC)•BusinessDevelopmentCanada(BDC)•TaxCreditsandIncentives(RRSP,CharitableDeductions)
PROVINCIAL / TERRITORIAL GOVERNMENTS•CommunityVentureCapitalCorporations•EmployeeShareOwnershipPlans•GreenEnergysupport•Taxcredits/incentives•Ministerialspending
MUNICIPAL/REGIONALENTITIES•ColumbiaBasinTrust•GwaiiTrust•ClayoquotBiosphereTrust•ABCCanada,ACCs,PeaceHillsTrust•CommunityFoundationse.g.McConnellFoundation,RichardIveyFoundationetc.
UNITED STATES
1. INVESTOR’S CIRCLE www.investorscircle.net
AlthoughtheInvestor’sCircleisintheUS,ithasacceptedanapplicationfromaVancouver-basedsociallyresponsiblebusiness.TheredoesnotappeartobeanyreasonwhyasocialenterprisethatmeetstheICmissioncouldnotapply.
Resources #5Other Sources - Canada14
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FFromDerekGent,FinancingCommunityEconomicDevelopment(PowerPointpresentation.)SFUCommunityEconomicDevelopmentProfessionalsCertificateprogramwithadditionalinformationfromAmandaDowling,Manager,CorporateSocialResponsibility,CitizensBankofCanada
Resources #6Other Sources - International
TheInvestorscircleisaUSbasednetworkofabout450earlystageprivateequityinvestorswhoseekfinancial,social,andenvironmentalreturnsontheirinvestments.Theirmissionis“togalvanizetheflowofcapitaltoentrepreneurialcompaniesthatenhancebioregional,culturalandeconomichealthanddiversity.”
Businessesmustfallintooneormoreoffivespecificinterestareas:•Energyandenvironment•Foodandorganics•Communityandinternationaldevelopment•Educationandmedia•Healthandwellness
Theyarealsoparticularlyinterestedinwomenand/orminorityledbusinessesaslongastheymeetthemission.
2. GLOBAL SOCIAL VENTURE COMPETITION (GSVC)www.socialvc.net
TheGlobalSocialVentureCompetitionisaninternationalbusinessplancompetitionthatpromotesthecreationbusinesseswithbothhighfinancialandsocialreturnsoninvestment.TheHassSchoolofBusinessatUCBerkley,ColumbiaBusinessSchool,LondonBusinessSchool,andTheGoldmanSachsFoundationjointlysponsorthiscompetition.
TheGSVCawardsprizestothebusinessplansthatshowthehighest,mostintegratedfinancialandsocialreturns,aswellasanawardforSocialImpactAssessment.ToqualifyfortheCompetition,aproposedventuremust:
•Plantobefinanciallysustainableorprofitable;whetheritisacommercialbusinessoranon-profitorganization,itmustbeself-sufficientonitsearnedrevenue.
•Haveaquantifiablesocialand/orenvironmentalbottomlineincorporatedintoitsmissionandpractices.
Eachentrantteammustincludeagraduatebusinessstudentfromanybusinessschoolintheworldoranindividualwhohasgraduatedfromgraduatebusinesseducatewithinthepasttwoyears(fromthedatethattheplanisfirstsubmitted).Thegraduatebusinessstudentmustbeactivelyinvolvedintheventure(ie,activelyparticipatingindevelopmentofthebusinessplanandpresentationoractivelyworkingonthebusiness).
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