1. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT v SOCIAL INVESTMENT: A NEW ROUTE TO FUNDING? Iona Joy, New Philanthropy Capital London Funders, December 2012 NPC - title of the document (can be changed under view/header and footer. Add date here if needed.1

2. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT NPC - title of the document (can be changed under view/header and footer. Add date here if needed.2 AGENDA 1 Roots of social investment market and where it is now01 2 Reaction from government, private investors and VCS 02 3 Who is receiving or considering social investment funding? 03 4 Risks, opportunities and challenges: what is appropriate for VCS? 04 5 The Future 05

3. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT NPC - title of the document (can be changed under view/header and footer. Add date here if needed.3 AGENDA 1 Roots of social investment market and where it is now01 2 Reaction from government, private investors and VCS 02 3 Who is receiving or considering social investment funding? 03 4 Risks, opportunities and challenges: what is appropriate for VCS? 04 5 The Future 05

4. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT AVAILABILITY OF FUNDS HAS GROWN OVER THE DECADE + 4 Social Investment Business £400m Big Society Capital £400m+ 2011/2012

5. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT 2012: KEY MARKET DEVELOPMENTS £165m market size (BCG/Young Foundation) Piddly - macro stats promise £1bn potential Investment readiness inhibiting deals –£10m ICRF fund launched summer (for big deals) –£10m Big Lottery IR fund (under tender – likely to be for smaller deals) –Community Rights grants –£10m Mutual Support programme BSC committed £37m to intermediaries – not just usual suspects! Government favouring payment-by-results mechanisms But Social Impact Bonds still a minority sport - complex 5

6. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT NPC - title of the document (can be changed under view/header and footer. Add date here if needed.6 AGENDA 1 Roots of social investment market and where it is now01 2 Reaction from government, private investors and VCS 02 3 Who is receiving or considering social investment funding? 03 4 Risks, opportunities and challenges: what is appropriate for VCS? 04 5 The Future 05

7. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT REACTION FROM GOVERNMENT Keen, but not a lot of money from OCS: –ICRF fund £10m –Social incubators fund £10m (odd beast) Local authorities and spending departments –Social Impact Bonds: Peterborough and now Essex Govt talks great commissioning talk but not on top of challenges – eg Commissioning Academy not about procurement Social Value Act pretty toothless Contracts – structure, timeframe, risk allocation not always investable With 70% market down to public services….. Commissioning key 7

8. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT REACTION FROM PRIVATE INVESTORS ‘Usual suspects’ supporting Social Impact Bonds, not gone much wider New investors came into Scope bond (first tranche closed oversubscribed) Trusts and foundations toe-dipping – handful eg, Esmee, Barrow Cadbury, Lankelly, Citybridge = most committed Fairbanking research: cautious interest, but private investors easily confused. Best to describe SI as new asset class to be treated separately NPC finding interest increasing, especially with ‘venture philanthropy’ types Private investors very variable – market needs segmenting so there is something for everyone FSA restrictions total headache –NPC and philanthropy advisers banned from specific advice –Few investment managers interested in small deals –Handful of IFAs getting interested –Intermediaries (some!) regulated but not independent 8

9. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT REACTION FROM CHARITIES ClearlySo/NPC investment readiness survey for Big Lottery 1,255 responses: charities and social enterprises – BLF grantees/CS database 9

10. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT REACTION FROM CHARITIES Main findings from survey/research: Some keen, some disheartened, some not sure Intermediaries/investors think charities not as investment ready as charities think they are Basic, secured financing easiest to procure (most of the purples) Longer term, higher risk financing trickier £10-100k most popular size of investment source (bit of a gap) External support doesn’t always match needs Other things we hear: Commissioning uncertainty thwarts business planning Trustees often behind the curve and need ‘bringing along’ Low conversion rates in pipeline/deal flow: are the right orgs applying? 10

11. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT NPC - title of the document (can be changed under view/header and footer. Add date here if needed.11 AGENDA 1 Roots of social investment market and where it is now01 2 Reaction from government, private investors and VCS 02 3 Who is receiving or considering social investment funding? 03 4 Risks, opportunities and challenges: what is appropriate for VCS? 04 5 The Future 05

12. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT CHARITIES AND SOCIAL ENTERPRISES RECEIVING SOCIAL INVESTMENT Mainly organisations providing services/selling products – less likely to be campaigning Popular sectors where finance procured: palliative care, housing and homelessness, environment, employment, international Sectors where finance being sought: offender management/resettlement, science and research, but not always successful! NB work programme/CJS programmes focusing on PbR, likely to have strong demand for working capital 12

13. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT NPC - title of the document (can be changed under view/header and footer. Add date here if needed.13 AGENDA 1 Roots of social investment market and where it is now01 2 Reaction from government, private investors and VCS 02 3 Who is receiving or considering social investment funding? 03 4 Risks, opportunities and challenges: what is appropriate for VCS? 04 5 The Future 05

14. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT 2013: OPPORTUNITIES Increasing availability of capital Increasing public rhetoric on social value VCS strong position on social value Increasing demand for capital, eg working capital, asset transfers NHS reforms opening up marketplace Shift to PbR in CJS as well as DWP Austerity measures provoking new delivery mechanisms Charities getting savvy about forming collaborations Some support around to get there 14

15. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT 2013: RISKS AND CHALLENGES Revenue to pay investments back: govt contracting uncertain Investment readiness –Business models –Management/financial systems –Governance –Knowing where to go and what to do Lack of independent corporate finance advice for investees and investors - both sides need extra skills Intermediaries snowed under, can’t do all the corp fin Processing capacity in intermediaries? FSA regulation an inhibitor? Getting to critical mass so there’s more variety to offer investors 15

16. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT 2013: PUBLIC SERVICES = MAIN DRIVER OF MARKET 70% of market = public services, shrinking but not gone away Massive need for working capital: billions! + expansion capital Commissioning = opportunity: VCS-friendly sentiments –Personalisation = opportunity - avoids procurement –PbR = opportunity - but tough negotiating risks and outcomes Procurement = risk: procedures not VCS-friendly –Commissioning Academy not about procurement Collaboration vital: big contracts covering everything favoured over multiple little contracts Evidence of social value: rising importance for service payers; gaining importance with investors 16

17. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT 2013: BUT OTHER 30% ALSO INTERESTING 30% of market = not public services – more fun? Please the customers and they buy– if they have the cash Asset transfers (to communities) need financing People very unsure how to go about being an enterprise Do we have enough entrepreneurs? 17

18. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT NPC - title of the document (can be changed under view/header and footer. Add date here if needed.18 AGENDA 1 Roots of social investment market and where it is now01 2 Reaction from government, private investors and VCS 02 3 Who is receiving or considering social investment funding? 03 4 Risks, opportunities and challenges: what is appropriate for VCS? 04 5 The Future 05

19. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT THE FUTURE –POSSIBLE SCENARIO VCS will adapt – always has done – and acquire necessary skills Short term, VCS will lose out to commercial sector on govt contracts – ecosystem will suffer Medium term VSC will fight back with collaboration and reinvention SI market will grow but BSC will carry much of the burden Longer term we’ll have sufficient ‘critical mass’ to create funds to appeal to different investors according to: –Causes –Financial reward/social return (this really varies!) –Risk –Attitudes/values Confidence in market will increase despite some public failures 19

20. X AXIS LOWER LIMIT UPPER LIMIT CHART TOP Y AXIS LIMIT v London Funders November 2012 NPC - title of the document (can be changed under view/header and footer. Add date here if needed.20