Sarah Flood, Project Manager

8 September 2011

New Ways to Raise Investment:

Social Impact Bonds and

Community Shares

•Social enterprise owned by a charity

•Large scale UK social investor

•10 year track record

•Manage +1400 investments in community orgs, charities, soc ents

•Support civil society organisations do more of what they do best

•Offering a range of financial products and business support

•Driving civil society sector public service delivery by helping to create powerful, well capitalised and thriving organisations

The Social Investment Business

FUND FUNDING

Adventure Capital Fund funding community enterprises to transform neighbourhoods

Social Enterprise Investment Fund Department of Health

invests in civil society orgs delivering health and social care outcomes, especially those innovating

Communitybuilders Department for Communities and Local Government

supports neighbourhood-based, community-led orgs to be more sustainable through mix of loans, grants and business support

FuturebuildersOffice for Civil SocietyCabinet Office

enables civil society orgs deliver public services

Investing in civil society

• We exist to help the third sector do more of what it does best –

supporting people and communities most in need

• Civil society organisations are often best placed to deliver public

services – local, knowledgeable, innovative and flexible

• Our mission is to strengthen the sector at both the organisational

and strategic level, to be more sustainable, resilient and valued

• Social investment is crucial – the market is still young

What we believe

Why we need new ways to raise investment

Some explanations In practice....Lack of mainstream finance Commercial banks not willing to

lendPublic spending cuts Previous sources no longer availableNew Government policy (Localism, Big Society, Public Services)

Govt wants CSOs more involved but new mechanisms to deliver

CSO’s thinking more strategically Less grant reliant, looking for new income streams and sustainability

Demand for investment growing As market develops, demand increasing

Untapped opportunity Money available but not being used – private business, charity assets etc.

Lack of available social finance/social investment

£0.19 £0.30£3.60

£13.10

£55.30

Bank lending

Individual giving

Philanthropic grant funding

Corporate giving

Social investment

Annual funding£billion

Source: Social venture intermediary survey, The Young Foundation

FINANCE STREAMS EXAMPLES

Government-backed Funds: • £60m Regional Growth Fund via CDFIs• £80m Communities First Fund• £20m Social Action Fund

Social Investors: • Social Venture Intermediaries • Trusts and Foundations• Private/Commercial Investors• Big Society Capital* (created by government to operate independently)

New income streams and financial models:

• Public Service Delivery - Payment by Results Social Impact Bonds• Community investment - Community Shares/Bonds

Funding the Big Society

• Peterborough Social Impact Bond

• Headingley Development Trust Community Shares

The Social Investment Business Experience

KEY FEATURES BENEFITS

PAYMENT BY RESULTS Driving performance to achieve outcomes.

RAISING INVESTMENT Good vehicle for raising investment with clear outline of possible returns.

SOCIAL AND FINANCIAL RETURN

Has potential to effectively tackle social problems, save govt money and offer financial returns for investor.

MEASURING SUCCESS Setting the right measures and proving outcomes.

MAXIMUM IMPACT Designed to ensure investment has maximum impact.

INNOVATIVE It’s new, bringing an increased focus on early intervention and prevention, and with it, comes risk.

Payment by Results - Social Impact Bonds

Community Investment

“The sale, or offer for sale, of more than £10,000 of shares or bonds to communities of at least twenty people, to finance ventures serving a community purpose”

• A way of raising money from communities through sale of shares or bonds to finance enterprises for community objectives.

• Shares are often preferred since share capital doesn’t have to be repaid, and is a more flexible form of capital.

• Some orgs are unwilling/unable to issue share capital, bonds are only option. Some have issued both shares and bonds.

• Community investment is an unfamiliar concept and often confused with community fundraising.• Plunkett Foundation helped to establish over 180 community-owned shops, most of which used

voluntary fundraising to raise capital. Only 10 community-owned stores used community investment to raise additional capital.

• Only ¼ of the population directly own shares or bonds, many through demutualisation of building societies and insurance companies, not by active purchase.

• 85 examples of CI to date. Among the 41 new initiatives since 1999, the most popular trade activity is renewable energy, followed by community-owned retail stores and community finance.

• In the future it can be used to finance any initiative capable of generating attractive financial and social return.

Types of Community InvestmentCommunity Shares

A legal right to membership and part-ownership of an org. in return for an investment.

•Excellent source of capital investment.•Highly effective way of engaging communities•Members have defined rights over the organisation•Investors get money back, sometimes interest/dividends•£20,000 limit in IPS shareholding reduces dependency on small no of investors•Community investors may qualify for Enterprise Investment Scheme tax relief. BUT•Not all orgs can issue shares.•Investors commit to indefinite periods/indefinite interest.

Community Bonds

A form of loan; legal agreement between bond issuer and purchaser, usually states amount of interest to be paid on set dates and when loan will be repaid.

•Attract investors who don’t want to commit money for indefinite periods, and want to know interest payable during full term of loan.•No limit on individual bond holdings, allowing wealthier members to invest more.•Interest paid to bond-holders is an allowable pre-tax expense from profits.BUT •Can be more expensive than shares, especially if fixed rate of interest.

Community Investment - Shares and Bonds

Headingley Development Trust (HDT) funded by our parent charity the Adventure Capital Fund (ACF).Headingley Development Trust (HDT) applied for an investment for its flagship project, Headingley Enterprise and Arts Centre (HEART).

HDT was awarded an investment towards costs associated with the conversion of Headingley Primary School into Headingley Enterprise and Arts Centre (HEART). HDT had already raised £50,000 via community shares towards the project and was aiming to raise a further £50,000 in the same way. As an added incentive for the organisation the ACF offer included a condition whereby the investment would be adapted by reducing the loan amount, on a pound for pound basis, against money raised via the second community shares issue - up to a maximum of £50,000. HDT raised a further £50,000 and the loan amount was subsequently reduced and the grant amount increased.

The finished building comprises a business catalyst centre, meeting and performance space, café with some offices for longer term rent.

Community Shares - Example

• Bring in new types of investor • – individual, community, charities, businesses

• Financial products/mechanisms to suit range of investors • – short/medium/long term, small/large etc.

• Greater community engagement

• More focus on outcomes

Some of the benefits of new methods of raising investment

• The social investment market is in its infancy and we are seeing signs of growth.

• Need to think about how we all work together to knit new finance mechanisms and the development of new models together.

Summary and Conclusions

• General Enquiries

• 0191 261 5200 

• Website

• www.thesocialinvestmentbusiness.org

Contact The Social Investment Business