Title: Building a Social Capital Market in Canada October 2005
1Building a Social Capital Market in
CanadaOctober 2005
2Agenda
- Social Capital Market Financing Social Change
- Global Context
- Canadian Approaches
- Roles We Can Play
3Financing Social Change Traditional Investment
Lenses
We tend to think of investment through
traditional sector-based lenses . . .
Wealth Creation
Private Investment
?
Blended Outcomes
Government Funding
Charitable Donations
Civil Society
Social Safety Net
4Financing Social Change The Need for Multiple
Lenses
. . . but innovative solutions to social and
economic challenges may exist between these silos
- E.g.
- Sustainability and Conservation
Private Investment
- Inner-city economic development
- First Nations economic development
Charitable Donations
Government Funding
5Financing Social Change An Example
. . . and some ground breaking organizations
already defy these traditional views
- Joint venture of nonprofit housing corporations
in Winnipeg - Renovates run-down housing in the inner city
- Employs 10-15 low-income inner city residents,
mostly Aboriginal Canadians - Has revitalized dozens of homes and commercial
buildings across the Winnipeg inner-city - Generated nearly C1.5M in business revenue in
2004 / 2005 but is struggling for profitability
6Financing Social Change An Example
However, these organizations often fall between
the cracks of traditional financing programs . . .
Investment Outcomes
Policy Outcomes
Charitable Outcomes
- Business generates revenue, strives for
profitability and services loans - However,
- Profitability and returns do not meet typical
private investment hurdles
- Jobs are provided for those who might otherwise
rely on social assistance - However,
- Government is reluctant to support an
organization that competes within the private
sector
- Affordable housing is constructed and at-risk
individuals receive job training - However,
- ICR does not fit the traditional definition of a
charity and cannot receive philanthropic gifts
7Financing Social Change A Social Capital Market
In these cases we must set aside traditional
lenses and create hybrid financing mechanisms . .
.
Traditional Businesses
Social Enterprises
Traditional Charities
Blended Outcomes
Pure Social Outcomes
Pure Financial Outcomes
Hybrid Financing Vehicles are Required
8Financing Social Change Hybrid Financing Tools
Each of the traditional sector-silos possess
tools that could be used to create hybrid
investment vehicles . . .
Private Investors
Government
Charitable Organizations
- Provide access to capital and assist in assessing
financial risk
- Offer effective tax incentives based on an
assessment of overall returns to society
- Foundations offer loan loss reserves or
guarantees - Charities help assess social benefit
Success is measured in terms of Social Return on
Investment
9However there is a significant role for
government to play in making this a more
desirable outcome
The UK
- Future Builders
- Approximately 250M Cdn to help finance social
sector infrastructure investments - Phoenix Fund
- Approximately 100M in support for direct
investment, CDFIs, CDVCs, and a central CDVC. - Community Investment Tax Relief
- Tax relief credit for investment in disadvantaged
neighbourhoods.
- These countries have built up successful track
records over the last 10-20 years.
The US
- Community Reinvestment Act
- Legislation passed requiring mainstream FIs
invest a component of their loan books in
disadvantaged areas. - Community Development Financial Institutions Fund
- Support in the form of start-up or further
capital infusions, technical assistance, or in
the form of tax incentives. - Community Development Venture Capital Funds
- Tax and capital support for the financing of
community development venture capital funds
10The investor development and government support
in the UK and the us has enabled some significant
success stories
The ShoreBank (US)
Stony Field Yogurt (US)
Significant support from government, and from
other sectors, has fostered the availability of
capital through mainstream institutions and new
CDFIs, and supported the development of true
blended value organizations.
Triodos Bank Charity Bank
Energywise Recycling (UK)
11While other countries are understanding the need
for a more buoyant social capital market Canada
is lagging behind
Risk Capital / Hybrid Capital
12Progress remains slow in Canada for a variety of
regulatory and cultural reasons
- A variety of different organizations are
attempting to develop alternative structures that
may better reflect a blended value proposition - Charities and NFPs
- A variety of social enterprises
- Unfavourable regulatory framework
- Narrow political and cultural norms
- Lack of innovative investment vehicles
- Investor resistance
- A growing industry of socially responsible
investors finds that it can be difficult to
invest in the developing gray space - Foundations interested in making program related
investments (pri) - Funds that need to present a market value
proposition to investors
13Underinvestment in Hybrid Approaches A Vicious
Cycle
Dearth of Hybrid Investment Institutions
And few chances to overcome . . .
And. . .
Less Risk taking and Innovation
Limited Hybrid Investment Expertise
And. . .
- Fewer entrepreneurial approaches
Leads to. . .
Few Risk Capital Investment Vehicles
Resulting in . . .
14Why Social Enterprise Creating a Positive Cycle
And attracts new . . .
Social Investors
Develop . . .
Greater social returns
New Risk Capital Vehicles
Which creates. . .
Which encourage . . .
Risk taking and Innovation
- Entrepreneurial Solutions to Social Problems
And allow . . .
15Vartana a social sector focused financial
institution
The Bank will significantly enhance the options
available to Canadas voluntary sector
- By creating an innovative charitable financial
institution built with the sector to better meet
its full range of financial service needs - By strengthening voluntary sector organizations,
helping them become more effective and innovative
in fulfilling their missions - By building relationships and support across
Canadas voluntary sector, regulatory and
business communities - By establishing a new bank that is economically
viable and fits within current policy frameworks
A registered charity
AND
A bank
16Vartana the need
The most pressing current challenge facing the
sector relates to financial capacity. It is clear
that new models that provide non-profit and
voluntary organizations with the stability and
support they need to develop human resources and
organizational infrastructure, and to engage in
long-term planning are at the heart of realizing
their full potential to serve Canadians. -
Voluntary Sector Initiative
17Vartana the proposed products/services
Traditional banking products tailored to the
sectors needs
and, in the future, additional financial
products and services
- Loans and guarantees
- Working capital loans
- Short term bridging loans
- Underwriting for a fund-raising programme
- Final step loans so a project can go ahead
- Loans for capital equipment
- Mortgage loans
- Renovation loans
- Credit cards
- Deposit products
- Chequing accounts
- Savings accounts
- Term accounts (e.g., GICs)
- Financial advice and information
- Cash management
- Disbursement services
- Automated information and reporting systems
- Lockbox
- Electronic payments
- Investment expertise
- Investment and advisory services
- Employee Benefits
- Group medical and dental
- Group non-medical and life
- Payroll Services
18Our Mission
About SCP
Invest in social enterprises that employ people
from economically marginalized
communities Enable these organizations to grow
and succeed financially Support these
organizations to create improved social and
financial outcomes for employees Catalyze other
innovative financing models for social
initiatives
19Our Investment Approach
About SCP
Using the principles of venture capital
To invest in high potential social enterprises
And create a network of successful enterprises
across Canada
That ultimately employ thousands of people
- Risk capital
- Deep engagement
- Management support
- Growth oriented
- Profitable
- Strong job creation per dollar invested
- Cross pollinate ideas and best practices
- Engage communities
- Make the concept mainstream
- Provide a positive alternative to social
assistance - Make long lasting changes in communities
20About SCP Results from our Portfolio Companies
Portfolio Company Revenue
Non-Target Employees
Portfolio Company Operating Profits
Target Employees
Individual Portfolio Companies
Target Employees 260 Total Employees 400
Portfolio Company Revenue 10.6M Portfolio
Company Profits 600k
21What can you do about it?
Private sector
- Look for ways to be catalysts for blended return
projects - Think with both a business and a charity hat on
more frequently
Charities/NFPs
- Learn and speak a blended return language
- Consider possibilities outside a solely
charitable structure
Foundations
- Consider investing part of your capital base, via
program related investments (PRI), in
organizations in the form of debt or equity,
along with grants - Consider convening meetings including all parts
of the community to further advance this type of
thinking locally
Government
- Consider regulatory policy that can act as an
enabler to a developing social capital market - Consider tax policy that makes blended return
investments more attractive
22www.socialcapitalpartners.cawww.vartana.org