1. Your Title Here DEPARTMENT NAME HERE LEARNING FOR LIFE LECTURE SOCIAL ENTREPRENEURSHIP Linda Darragh Executive Director, Kellogg Innovation & Entrepreneurship Initiative Executive Director, Levy Institute of Entrepreneurial Practice Clinical Faculty of Entrepreneurship

2. Agenda 1.Different Social Enterprise Business Models 2.The Impact Financing Continuum 3.Issues in Blending Financial and Social Missions 4.Impact Investing in Chicago LEARNING FOR LIFE LECTURE | Social Entrepreneurship

3. Different Social Impact Business Models LEARNING FOR LIFE LECTURE | Social Entrepreneurship

4. Room To Read Schools Teachers Books Nonprofit John Wood Kellogg ‘89 Donors $ $ $ $

5. LEARNING FOR LIFE LECTURE | Social Entrepreneurship Donors $ $ Farmers Trainers Supply Chain One Acre Fund Nonprofit MICRO LOANS $ $ INTEREST $ Andrew Youn Kellogg ‘06

6. LEARNING FOR LIFE LECTURE | Social Entrepreneurship Clean Slate Nonprofit Donors $ At Risk Individuals NEIGHBORHOOD BEUTIFICATION SERVICES At Risk Individuals Customers TRAINING $ WAGES $ $ Earned Income

7. $ * Sustainable Local Food Investment Group LEARNING FOR LIFE LECTURE | Social Entrepreneurship Sugar Beet Food Co-op For-Profit Co-operative SLoFIG* Angels $ LOAN Brick and Mortar REVENUE BUILD OUT $ $ Interest Repayment

8. LEARNING FOR LIFE LECTURE | Social Entrepreneurship Edovo For-Profit Brian Hill JD/MBA ‘15 HNWI* $ EQUITY $ $ AWARDS $ GRANTS Business Plan Comps. $ GRANTS Incarcerated EDUCATION PLATFORM *HNWI = High Net Worth Individuals $ REVENUE

9. LEARNING FOR LIFE LECTURE | Social Entrepreneurship Break-even Market-driven-revenue Philanthropy Profits 100% Donations 30% returns Non-Profit For-Profit Venture Philanthropy Impact Investing Philanthropy VC Funding The Impact Financing Continuum FUNDING SOURCES

10. Venture & Social Capital Comparison Source of Capital Expected Returns Time Horizon Investment Vehicle Exit Strategy Angel Capital HNWI*30%5 – 10 years equitySeries A (B) investment or acquisition Venture Capital HNWI, pension funds, financial institutions 30%5-7 yearsequityAcquisition or IPO Venture Philanthropy Foundations, HNWI 0%10+ yearsGrants, loansExit or payback Impact Investment HNWI*10 – 30%? yearsEquity, loans, PRIs, convertible notes, royalty streams IPO, Acquisition, dividends, *HNWI = High Net Worth Individuals LEARNING FOR LIFE LECTURE | Social Entrepreneurship

11. Issues in Blending Financial & For- Profit Missions LEARNING FOR LIFE LECTURE | Social Entrepreneurship

12. Financial Vs. Social Business = Sin Charitable works = Atonement 17 th Century Puritans LEARNING FOR LIFE LECTURE | Social Entrepreneurship

13. Inherent Tension Milton Friedman: “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game..” The imperative of fiduciary responsibility to the shareholders. Can a company that has a social mission implement a strategy that trades off financial returns for social returns? LEARNING FOR LIFE LECTURE | Social Entrepreneurship

14. Benefit Corporations LC3 Corp. October 22, 2015 Revision to the Employee Retirement Income Security Act. private pension fund fiduciaries can consider economic, environmental, social, and governance concerns in addition to financial return when making investments unlocks a significant source of new capital for socially responsible businesses and funds.

15. Impact Investing in Chicago LEARNING FOR LIFE LECTURE | Social Entrepreneurship

16. Impact Investing in Chicago June 2011 Impact Investing Conference LEARNING FOR LIFE LECTURE | Social Entrepreneurship Social Entrepreneurs Impact Investors

17. Early Results For Impact Engine I-III are Positive $525K fund formed in 2012 8 portfolio companies valued at 2.5x Raised $18.0 million in follow-on capital Impacting the education, health and livelihoods of over 180,000 people IMPACT ENGINE, LLC IMPACT ENGINE II, LLC IMPACT ENGINE III, LLC $575K fund formed in 2013 8 portfolio companies valued at cost Raised over $5.5 million in follow-on investment Providing education for 3,000+ inmates in 4 prison systems; supporting 26,000 educators and over 350,000 students; saved and served 771,000 meals $650K fund formed in 2014 7 portfolio companies valued at cost Raised over $2.0 million in follow-on investment Tracking over 17 million units of medical supplies; engaged with 5,500 student writers; supporting 60,000 parents and children with autism LEARNING FOR LIFE LECTURE | Social Entrepreneurship

18. Impact Engine Also Drives Other Positive Impacts Support the creation of companies and jobs, fostering economic development. $1.875M invested in 26 companies, employing 147 people FT and 51 PT Portfolio attracted $23.8M in investment and $2.1M in philanthropic funding Diverse entrepreneurs: 9 women and 11 minority Educate, support, and provide opportunities for mentors and funders motivated by impact. 600+ mentors, including many successful entrepreneurs and senior executives 100+ unique individual impact investors 3,000+ community members LEARNING FOR LIFE LECTURE | Social Entrepreneurship Economic Development Impact Investing Community

19. Building on past success and filling important gaps Mentoring & support Investor community Range of investment sizes from small pre-seed to Series A (focused on leading Seed rounds) Mentoring and support Investor community Small amounts of capital Impact I, II and III Impact IV Accelerator Angel/Seed Series A LEARNING FOR LIFE LECTURE | Social Entrepreneurship

20. Angel investment group (30 members) Investments in 8 businesses for a total of over $1.3M Of 8 investments, 4 equity, 1 convertible note, 3 loans Of 8 investments, lead investor in 5; participant in 3 Three exits with returns between 4 and 8%; one business closed; four still outstanding

22. The Future of Impact Investing Case Foundation: Short Guide to Impact Investing What work is still needed? Better data on business and fund performance Robust pipeline of investible deals Expanded opportunities for exits and return of capital Actionable research on impacts and outcomes More products and easier ‘on ramps’ for people to get started.

23. Appendix LEARNING FOR LIFE LECTURE | Social Entrepreneurship

24. From Impact Engine I 24 Founded by Eileen Murphy, an expert in critical thinking and common core from CPS’ Curriculum & Instruction team; part of the founding teacher corps at Walter Payton College Prep Technology platform for literacy instruction that leverages lesson plans designed by master teachers and methodology for teaching critical thinking Implemented in 213 schools, serving 350,000 students and 26,000 teachers on paid accounts Identified by Bill Gates as one of the most promising tools for teachers Raised $4.95M capital from investors/funders such as Deb Quazzo, Gates Foundation, Follett Knowledge Fund and MATH Venture Partners Eileen Murphy FOUNDER & CEO CONFIDENTIAL

25. From Impact Engine I 25 Founded by Kathleen Wright, who spent four years providing microfinance loans to artisans in the developing world and observed first-hand that what artisans really needed was work to enable them to provide for their families Launched Piece & Co to connect US brands with a supply chain of artisans groups around the world; unique, textile-based products are designed by brand partners and produced by artisans Brand partners include Nordstrom, Diane Von Furstenburg, Tory Burch, Crate & Barrel, J. Crew; working with artisan groups in 21 countries; net revenues of $1.5 million to-date Over 32,000 lives impacted through creation of sustainable work at a living wage; $257,536 income paid to Artisans since 2014 Kathleen Wright FOUNDER & CEO CONFIDENTIAL

26. From Impact Engine II 26 Founded by Raj Karmani, PhD in computer science from the University of Illinois who became frustrated by the problem of good food going to waste; self-proclaimed “food recovery nerd” Technology platform for connecting food businesses with perishable surplus to nonprofits seeking food donations 925,000 lbs of food diverted from landfill; 771,000 meals served through nonprofit partners in Chicago Partnerships with Compass USA, Aldi, Food for Thought Hospitality Group, Sodexo, NRDC in Nashville, and over 60 Chicago nonprofits Named to Entrepreneur Magazine’s list of apps that could solve America's food waste problem Raj Karmani FOUNDER & CEO CONFIDENTIAL

27. From Impact Engine II 27 Founded by Brian Hill, whose father taught in prison systems and believes that tremendous human potential is trapped in a cycle of poverty and recidivism Tablet-based education platform, Edovo, available on a subscription basis to inmates Deployed at incarceration facilities in Philadelphia and Napa County; serving 3,000+ inmates; 700,000+ minutes of content Raised $1.8 million in investment capital from investors such as Mitch Kapor, founder of Lotus 1-2-3, and SustainVC; raised $645K from philanthropic supporters, including MacArthur Foundation Brian Hill FOUNDER & CEO CONFIDENTIAL