Shawn Westcott: Impact Investing - Lessons globally and from Sweden (8.4.2014)

IMPACT INVESTINGLessons Globally and from Sweden

Impact Invest SCANDINAVIA SITRA Helsinki, Finland 8 April 2014

SHAWN WESTCOTT, MSc Founder & Chairman

Impact Invest Scandinavia www.impactinvest.se

http://www.impactinvest.se

IMPACT INVEST SCANDINAVIA

www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014

LOCAL • Founded in October 2012• A Network of investors to scale up

flow of capital to social enterprises• “Virtual VC Firm” • Local focus and international• Learning/Action Environment for:• Individual investors• Private Capital• Public Funders• Philanthropies• Increased interest from funds and

institutional investors

GLOBAL / Toniic •Founded in October of 2010•Currently 60+ investors globally (20 in Europe) seeking to place ~$120M in early stage investments and funds — rapid traction• Investing at the rate of roughly 1 deal per month•Deployed over USD11 million in 25 deals in first 24 months•Expectation for 2014 USD8-10million

In Partnership with

• Deal Flow: Online Platform, Global Partnerships, Screening • Collaboration: Online Platform, Global Virtual

Meetings, Interaction formats (Practice Grps) • Connectedness: Global Community, Network

Infra-structure, Global Gatherings

Global Products, Local Service, lovingly delivered ;-)

Community!Trust, Practice, Learning

Global Products Local Service•Meetings: Monthly local, bi-monthly regional,

retreats (ski trip, alpine hike, sailing...?) •Member Support: Connection to members,

entrepreneurs, partners (eg lawyers, advisors...) • Glocal: interface between local and global

community • Diligence: upon request from members

OUR OFFERING

IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se

IMPACT INVEST PARTNERS


OUR MARKETIMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se

THE BASE OF THE PYRAMID


SOCIETY’S URGENT PROBLEMS

GLOBAL • END POVERTY & HUNGER • UNIVERSAL EDUCATION • GENDER EQUALITY • CHILD HEALTH • INCLUSION • YOUTH EMPLOYMENT • MATERNAL HEALTH • COMBAT HIV/AIDS • ENVIRONMENTAL DEGRADATION • GLOBAL PARTNERSHIP

IMPACT INVEST SCANDINAVIA | 7 APRIL 2014

NATIONAL • IMMIGRATION & INCLUSION • YOUTH EMPLOYMENT • GENDER EQUALITY • SENIOR CARE • ENVIRONMENTAL DEGRADATION • FOSSIL FUEL INVESTMENTS • GLOBAL PARTNERSHIP

www.impactinvest.se

“When we want to help the poor, we usually offer them charity. Most often we use charity to avoid recognizing the problem and finding the solution for it. Charity becomes a way to shrug off our responsibility. But charity is no solution to poverty. Charity only perpetuates poverty by taking the initiative away from the poor. Charity allows us to go ahead with our own lives without worrying about the lives of the poor. Charity appeases our consciences.”

- Muhammad Yunus

SOLUTIONS BEYOND CHARITY


NEED FOR MORE INNOVATIVE MODEL

“The philanthropic model is not able to deal effectively with social issues... it does not allow for innovation and scale. We need a kind of investment in social entrepreneurs that is similar to business entrepreneurs.”

!

Sir Ronald Cohen Co-founder of VC Fund Apax

known as “Father of British Venture Capital” Founder Bridges Ventures (2002)

!



BLENDED VALUE

• BLENDED VALUE IS THE IDEA OF “DOUBLE IMPACT”

• BUILDING SOCIAL CAPITAL • PUBLIC, PHILANTHROPIC, OR PRIVATE

CAPITAL

www.impactinvest.se

Impact First Investors

Commercially Driven

• Clear commercial driver and (potential for) commercial viability

• Scalable and/or replicable

• Managed by a company or market oriented organisation

Impact• Social Impact (increasing income, products, environment, opportunities, gender equality among poor people)

• Environmental Impact

Risk-sharing commitments

• Clearly defined elements of cost-sharing from the company

• Minimum two investors

Innovative• Innovative; going beyond what exists now, in terms of the product/service, the delivery mechanism/business

model and/or market reach

Hygiene factors• Avoid negative effects (market distortions, corruption etc)

• Good governance etc

COMMON INVESTMENT CRITERIA


N o n - P r o f i t


N o n - P r o f i t t h a t

g e n e r a t e s s o m e i n c o m e

Impact INVESTMENT SPECTRUM

S o c i a l E n t e r p r i s e

S o c i a l l y r e s p o n s i b l e

b u s i n e s s

B u s i n e s s e s t h a t p r a c t i c e

c o r p o r a t e s o c i a l

r e s p o n s i b i l i t y

T r a d i t i o n a l f o r - p r o f i t

Our Focus AreaFINANCIAL

FIRSTIMPACT FIRST

www.impactinvest.se

TYPES OF SOCIAL INVESTMENTS

1. DEBT • SECURED LOANS • STANDBY FACILITIES • OVERDRAFTS • UNSECURED LOANS

2. EQUITY • SHARES • PERMANENTLY INVESTED


3. Quasi-EQUITY • COMMON TO EARLY HIGH-RISK

ENTERPRISES • DOESN’T REQUIRE ISSUING OF

SHARES • BASED ON FUTURE REVENUES

www.impactinvest.se

Social Entrepreneurs are transforming social and environmental challenges into business opportunities • Sustainability

Kumaza, BERL, Urban Farmers • Climate Change

CO2Cut, Solar Mosaic • Poverty

Working World, SMV Wheels • Water & Sanitation

X-Runner, Sanergy, WADI • Healthcare

eHealthpoint, Aravind • Political Activism

Change.org, purpose.com • Education

Bridge Academies, Ubiquity University

Impact Investors are mobilizing significant resources to address these challenges • Impact Investment growing from $50bn today

to $650bn in 3-4 years (GIIN) • EIF raising a €500m Impact Investment FoF • Toniic investors invested in

25 deals totaling >$10m in 24 months!

• Big Society Capital being capitalized with GBP600m

• Impact Base lists 125 Impact Investment Funds

T h e I m p a c t O p p o r t u n i t y

THE IMPACT OPPORTUNITY


http://impactiq.org/impact-investment-performance-tiptoeing-toward-transparency/


STEPS TO IMPACT INVESTING

www.impactinvest.se

http://impactiq.org/impact-investment-performance-tiptoeing-toward-transparency/

SET UP $10M impact FUND ๏ Diversity in portfolio for less risk, split into

“financials first”, “blended”, and “impact first”

๏ 38 investments made

๏ Use fund for ‘incubator’ role

๏ Investing in poorer areas can be much more investment effective

๏ Good results from direct investments

๏ Total return over 5 years ranges 1.0-6%

๏ Outperforms all benchmarks but one (fixed income)


Sonen Capital. Evolution of an Impact Portfolio: From Implementation to Results

EXAMPLE PORTFOLIO: KL FELICITAS

www.impactinvest.se

http://www.sonencapital.com/evolution-of-impact.php


CROSS-SECTORAL SUPPORT

I N D I V I D U A L SP H I L A N T H R O P Y

B A N K S & F I N A N C I A L

I N S T I T U T I O N S

G O V E R N M E N T

Report by J.P. Morgan:

“Between $400bn and $1tr will

be invested over the next

decade in business and services

dedicated to those earning less

than $3,000 a year”

!

There is a growing ecosystem to

support these businesses with

global financial capital

www.impactinvest.se

EVOLVING ECOSYSTEM

Www.impactinvest.seIMPACT INVEST SCANDINAVIA | 7 APRIL 2014

1. Inspire • Social Networks • Events & Conferences • Promotion • Awards 2. CONNECT

• Networks • Intermediaries • Co-working spaces • Hackathons • Peer Support

3. Prepare & Scale • Fellowship • Accelerators • Incubators • Coaching and Support 4. FUND & Support

• Debt & Equity • Loans & Guarantees • Non-Financial • Local market support • Favorable Legislation

THE FIRST SOCIAL IMPACT BOND

2010 - Ronald Cohen creates first social impact bond, the now well-known Peterborough Social Impact Bond, in collaboration with the British Ministry of Justice. Why a bond? The aim was to reduce the 60% recidivism rate by young prisoners within one year of their release from the Peterborough jail. A bond would allow for external investors and a mid-term return agreed in advance in relation to outcomes.


• 17 investors (foundations and charitable trusts)

• Gov’t Agreed to pay return if REC. rate dropped to 7.5%

• Sliding yield capped at 13.3% • If achieved, will outperform

most traditional bond markets

• Results in 2014

GROWTH OF IMPACT BONDS


• Examples in UK, US, Australia, NL, NZ, etc.

• ISSUES include Recidivism, Disadvantaged youth, Homelessness, Foster Care

• Usually steady rate of return (Range of 4-15%)

“Social Benefit Bonds” Newpin SBB (AUS)

SCANDINAVIA & “Stipsters”IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se

From Guardian UK, March 2014!Photograph: Wavebreakmedia

A Different MARKET• Traditionally strong social sector • Government led initiatives • Public ownership in private companies • Strong volunteer sector • Relative homogeneity • Belief in collective responsibility with

individual initiative • Still young market • Focus on growing infrastructure


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http://www.ashoka.org

http://reachforchange.org/sweden/

http://www.cses.se/


INSPIRING ORGANIZATIONS

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http://www.ashoka.org

http://reachforchange.org/sweden/

http://www.cses.se/


CONNECTING ACTIVITIES

www.impactinvest.se

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PREPARATION FOR SCALING

www.impactinvest.se

ACCELERATOR ‣ SHORT-TERM ‣ PACKAGE OF SERVICES ‣ QUICK TO MARKET ‣ OFTEN ESTABLISHED ENTERPRISES

INCUBATOR ‣ LONGer-TERM ‣ FULL-SERVICE ‣ DEDICATED SPACE ‣ ATTACHED TO FUNDING

http://www.westcott.se


FUNDING SUPPORT

www.impactinvest.se


POLICY CHANGES

www.impactinvest.se

• Investor deduction introduced 1 Dec 2013. • Natural person who acquires shares in a company

of a smaller size in connection with its formation or at a rights issue may get to deduct half of the payment for the shares in the capital income.

• Deductions given w/ max 650 000 SEK per person per year, which corresponds to the acquisition of shares for SEK 1 300 000.

• Investors' total payment for the shares in any one company shall not exceed 20 000 000 SEK / year. !

• New green fund for clean tech • Swedish government aims to invest

approximately 700 million SEK • Would last until 2020, thus 100 million

SEK would be allocated each year • “National Social Innovation Strategy”

• use the potential of social innovation and social entrepreneurship in order to meet challenges society is facing.

• The goal is that “businesses and organisation in Sweden reach world-class innovation ability”

!

A MATURING MARKET...TODAY • Dumbing down to “investable or not“

definition • Focusing on organizational, not impact,

growth • Generating prohibitive fundraising

costs • Facing lack of pipeline for investments

due to lack of collaboration, hybrid financing, information sharing

TOMORROW • Collaborative thinking about lifecycle needs

of a social business • Reframed debate on global impact growth

and hybrid financing across instruments and funders

• New generation of hybrid instruments • All enabled by a unique pipeline of “impact

opportunities”


...FOR NEW, OR SCALED, HYBRID SOLUTIONSCROWD FUNDING • Turning everyone into business angels • Works for smaller financial needs • Tangible outputs !

WORKING CAPITAL/ADVANCES • Banks or other investor to provide working

capital or advances against future, secure cashflows (e.g. gvt contracts)

LOAN GUARANTEES • Foundation or other donor provides (partial)

default guarantee to enable low-interest impact investments, and to enable impact investments that would otherwise not be feasible

!

INVESTMENT SUPPORT

• Private donor or foundation provides investment readiness grant or interest subsidy, enabling loans or equity

The market is about to change ... • Sida is re-organising their loans and guarantees

• €92m from European Commission (co-pioneered by Ashoka), flexible terms enabling hybrid deals

• KfW providing matching funding to social enterprises

• GLS and other banks innovating investment products combining donations and savings

THE ROLE OF GOVERNMENT?IMPACT INVEST SCANDINAVIA | 7 APRIL 2014 www.impactinvest.se

How Government Can SUPPORT Impact Investing


‣ Convene ‣ National Direction with Local Actions ‣ Infrastructure Support ‣ Provide legal framework for recognition of social enterprise ‣ Provide Tax incentives ‣ Guarantees for Investing ‣ Funding

CONTACT ME!

SHAWN WESTCOTT EMAIL: [email protected] PHONE: +46 737 26 44 07


mailto:[email protected]

Shawn Westcott: Impact Investing - Lessons globally and from Sweden (8.4.2014)

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Transcript of Shawn Westcott: Impact Investing - Lessons globally and from Sweden (8.4.2014)