1. WEBINAR SOCIAL INVESTMENT 6 JULY 2015

2. INTRODUCTIONS Geetha Rabindrakumar Social Sector Leader, Big Society Capital Andrew O’Brien Head of Policy and Public Affairs, Charity Finance Group Lauren Bernard and Helen Ridgway Technical support, NCVO

3. ABOUT THE WEBINAR 30 minute presentation o 20 – social investment overview o 10 – social investment tax relief 15 minutes Q & A Please type your questions into the questions panel at any time (at the bottom of your webinar dashboard). Please complete the short follow-up survey upon exiting the webinar.

4. SOCIAL INVESTMENT AN OVERVIEW

5. Has your organisation taken on social investment or borrowed money? POLL TIME…

6. Youth unemployment Homelessness Charities & social enterprises are dealing with some of the most challenging issues in the UK Reoffending Adoption Ageing population Financial exclusion Social isolation Fragmented communities Educational attainment Obesity THE SOCIAL CHALLENGE

7. Social investment is the provision of finance to generate social and financial returns WHAT IS SOCIAL INVESTMENT? Philanthropy Social Return Investment Financial Return Social Investment Social & Financial Return Social investment is not a grant – there is an expectation of repayment of the finance, plus a return

8. WHAT IS SOCIAL INVESTMENT? “The first ever charity retail bond: Mencap's property arm offers 4.4% interest to savers - and you can sell it on” “People as old as 6 and as young as 84 have raised funds, painted walls, built websites, organised events, made butties….and encouraged others to come and use Bramley Baths”

9. WHY SOCIAL INVESTMENT? SECTOR ∞ Recycle money available  Attract additional funding ~ Be more flexible than grants  Enable enterprise to direct grantincome to where most needed  Bring business discipline(effectiveness)  Bring wider support andengagement with your mission Bring involvement/expertisefrom motivated investorsIncrease your impact!! INDIVIDUAL CHARITY Social Investment can benefit the wider sector, as well as the individual charity taking on the investment.

10. EARLY CONSIDERATIONS Purchasing/refurbishing assets Working capital (e.g. to support payments by results contract) Bridging finance (e.g. confirmed grant) Expand existing activities/ deliver new services Government contract Rental income Membership fees Donations OrganisationActivitiesOutputsOutcomesImpact WHAT DO YOU NEED INVESTMENT FOR? IS THERE AN INCOME STREAM? WHAT SOCIAL IMPACT ARE YOU SEEKING TO CREATE?

11. TYPES OF INVESTMENT DEBT

12. What type of finance is this? How can it help? A loan given against the security of an asset, such as property or equipment (at a lower rate than unsecured debt) Funds working capital, growth or specific projects Typically more suitable for small and medium sized charities and SSOs SECURED LOANS OVERVIEW Considerations Failure to replay loan can mean repossession of the asset Could a mainstream lender more suitable secured finance than a social investor ? SOCIAL BANKS Charity Bank Capitalised with £14.5 from Big Society Capital between 2014 – 2016. Secured lending of £50k-£2m Triodos Bank Secured lending of between £25,000 and £15 million per project Unity Trust Bank Partnership with Big Issue Invest to offer 100% secure loan finance for property deposits Ecology Building Society Mostly mortgages with a minimum rate of 4.9% at up to 80% of property value Secured loans from £50k to £6 million

13. What type of finance is this? How can it help? Short term bridging support pending a specific repayment event (such as an identified inward investment or cash-receipt or potentially by exception, fund-raising event). Working capital Development capital for investing in growth, capacity and scale (e.g., deposits for asset purchase, product development) UNSECURED LOANS OVERVIEW Considerations Risk appetite – higher rate than secured loans Not suitable for early stage ventures/ businesses Profile and predictability of repayments £250,000 – 3M size flexible loans Annual interest rates 6 – 12% Investors: Social Impact Accelerator (FSE) UNSECURED LOAN FUNDS Third Sector Loan Fund (SASC) £250,000 – 1M size flexible loans Rates higher than senior lender finance Investors: CROWDFUNDING SITR provides VCSEs with tax relief on lowest forms of unsecured debt. Peer to business platforms Organisations get investment directly from individuals Examples: Debt – based platforms Individual buy security, normally in the form of a bond (unsecured loan) Examples: SMALLER UNSECURED LOANS CAF Venturesome Loans £25k-£250k: Keyfund (North and Midlands): Loans up to £300k Local community foundations Availability of small loans <£150k will be increased in future Streetleague - Unsecured loan £125k for working capital from Venturesome

14. TYPES OF INVESTMENT EQUITY

15. What type of finance is this? How can it help? Equity finance is less commonly used than debt finance. Some VCSEs can issue shares, and co-operatives can raise finance by selling shares to members. Equity can provide genuine risk capital: for very early stage start-ups to risk capital for social enterprises with proven business models that have the potential to scale “Quasi – equity” for charities is debt with variable repayments e.g. linked to revenue Often comes with more than just money – support, networks, advice EQUITY OVERVIEW Considerations VENTURE FUNDS SOCIAL ANGELS NESTA Impact Ventures Received £8m from Big Society Capital Pre-profitability equity investment in SSOs tackling youth unemployment, elderly care and community exclusion LGT Impact Ventures Received £10m from Big Society Capital Growth/ scale equity capital in SEs with proven business models UnLtd Big Venture Challenge offered social start-ups funding matched by social angel investors ClearlySo angel network Typical equity raises between £50,000 and £250,000 deal Do you want to give up a proportion of control over your business? Are you going to (or do you want to) make enough profit to give shareholders a return on their investment? Do you want to share risks? COMMUNITY SHARES Individuals investing in innovative community businesses Ecodynamic – local investment for community benefit

16. TYPES OF INVESTMENT OTHER

17. SOCIAL IMPACT BOND IN HEALTH Ways to Wellness Lead delivery charity SIB SPV Investment into SIB programme Payments triggered by outcomes represent a % of cost savings Investors Newcastle West Clinical Commissioning Group (CCG) Social prescribing to those with an expressed willingness/ability to change. Payment metric: Improved employment and reduced health care costs 1800 patients improve self-care and positive behaviour change leading to increased likelihood of returning to work and reduced burden on health provision Commissioner: Newcastle West Clinical Commissioning Group (CCG) Investors: Bridges Social Impact Bond Fund (£1.65m) Delivery charity is VONNE Initial investment in Ways to Wellness (W2W), a social impact bond (SIB) formed to fund the provision of social prescribing to people with long term conditions ('LTCs')in Newcastle West. W2W is aimed at c.1800 patients per year, aged 40 - 75 living in the area, who have one or more specified LTCs who have expressed willingness/ability to change. This SIB is commissioned through a 7 year contract.

18. SOCIAL PROPERTY FUND St Mungo’s Broadway Resonance There are over 6,500 people sleeping rough in London and 42,430 households living in temporary accommodation. There is also a lack of suitable transitional accommodation for people at risk of or experiencing homelessness. St Mungo’s Broadway set up Real Lettings to provide affordable accommodation and support for up to two years to homeless families and individuals. Real Lettings leases property from the Real Lettings Property Fund for a five year term. Rental income from the properties which is largely from housing benefit is used to repay investors. The Fund aims to help up to 600 people by providing around 220 properties over seven years.

19. WHAT WE’VE BEEN DOING AT BIG SOCIETY CAPITAL HSBC Barclays Lloyds TSB RBS Dormant Accounts Other Investors Social Finance Providers (‘intermediaries’) Social Sector Organisations £600m Improving understanding of social investment Creating a better environment for social investment Encouraging more investors to become social investors Increasing awareness among charities and social enterprises that might benefit from social investment £158 million of signed investment so far General and specialist funds: loans, equity, regional, social issue, community Social Impact Bonds Social Banks Charity Bonds Supporting market infrastructure As an investorAs a market champion

20. Do you think social investment could be relevant to your organisation? POLL TIME…

21. SOCIAL INVESTMENT TAX RELIEF

22. How interested in social investment tax relief are you currently? POLL TIME…

23. WHAT IS SOCIAL INVESTMENT TAX RELIEF? Social Investment Tax Relief (SITR) is a tax relief that enables individuals to reduce their tax bill by investing in charities, Community Interest Companies (CICs), community benefit societies (Bencoms) and Social Impact Bonds. Investors can choose to claim up to 30% relief against their income tax bill or to defer capital gains tax. Gains on investments made with SITR are exempt from capital gains tax after three years.

24. WHAT TYPES OF INVESTMENTS ARE ELIGIBLE FOR SITR? Source: BSC: BSC

25. HOW DOES SITR WORK? For example, Margaret provides £100,000 in loans for The Really Environmental Charity to develop a recycling service for a local community. Margaret is now able to get £30,000 in income tax relief (30% of £100,000). Her income tax liability was £45,000 – but because of her SITR relief, she now only has to pay £15,000 (£45,000 minus £30,000). The Really Environmental Charity now has £100,000 to invest in its recycling services for the local community over the next 28 months – potentially at a lower rate of interest, because Margaret has already received £30,000 in tax relief for making the loan.

26. THINGS TO KEEP IN MIND SITR is a tax relief aimed specifically at charities and CICs, this means that it counts towards ‘state aid’. When calculating the amount that you can raise through SITR, you must take away any ‘state aid’ applicable grants from public sector organisations (or publicly funded institutions such as the Big Lottery Fund. For example, if your organisation has received a £50,000 grant from Public Body A which is not exempted from state aid rules, then you must reduce the amount you can receive through SITR by £50,000. Remember to keep HMRC informed about any changes. Once investment into your organisation has been approved for SITR by HMRC, you must inform HMRC if there are any changes to your organisation or the investment that may affect your eligibility within 60 days.

27. CHALLENGES Remember this is a new tax relief and it will take time to increase public awareness – so learn the rules and be prepared to explain the relief to multiple investors! Social investment is not a ‘quick’ process and this tax relief will not replace the need to come up with robust business plans and sound analysis of risks. Make sure that you have a compliance system in place to monitor the investment. This will ensure that can provide information to HMRC or investors on request about how their investment has been used and that it has met the rules.

28. CASE STUDY A community based/supporter owned football club, it is trying to raise £200,000 from supporters to build its new ground. It is offering an optional rate of interest (2%) and is promising full repayment within four years. Marketed as better than ISA or savings & providing a social return to supporters through 2% interest + 30% reduction in tax liability. FC UNITED OF MANCHESTER

29. Is social investment tax relief something you would now consider using? POLL TIME…

30. BIG SOCIETY CAPITAL If you: have raised investment using SITR are in the process of doing so are considering raising finance using SITR within the next 12 months and would like to know more about additional advice and focused PR support available to the first charities and social enterprises to use SITR, please do sign up for more information: http://bit.ly/1JQdIM9 FIRST TO THIRTY

31. Q&A Type your questions into the questions panel on the webinar dashboard

32. THANK YOU Geetha Rabindrakumar @BigSocietyCap grabindrakumar@bigsocietycapital.com Andrew O’Brien @CFG_OBrien andrew.o'brien@cfg.org.uk Please complete the short feedback survey!