Building a Social Capital Market in Canada
October 2005
1
Agenda
1.
Social Capital Market: Financing Social
Change
2.
Global Context
3.
Canadian Approaches
4.
Roles We Can Play
2
Financing Social Change: Traditional Investment Lenses
We tend to think of investment through traditional sectorbased lenses . . .
Private
Investment
Wealth Creation
?
Blended
Outcomes
Government
Funding
Charitable
Donations
Social Safety Net
Civil Society
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Financing 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
Government
Funding
• Inner-city
economic
development
• First Nations
economic
development
Charitable
Donations
• Affordable
housing
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Financing 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 C$1.5M in business revenue in 2004 /
2005 but is struggling for profitability
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Financing Social Change: An Example
However, these organizations often fall between the cracks
of traditional financing programs . . .
Investment Outcomes

Business generates
revenue, strives for
profitability and
services loans
However,

Profitability and
returns do not meet
typical private
investment hurdles
Policy Outcomes

Jobs are provided
for those who might
otherwise rely on
social assistance
However,

Charitable Outcomes

Affordable housing
is constructed and
at-risk individuals
receive job training
However,
Government is
reluctant to support
an organization that
competes within the
private sector
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
ICR does not fit the
traditional definition
of a charity and
cannot receive
philanthropic gifts
Financing Social Change: A Social Capital Market
In these cases we must set aside traditional lenses and
create hybrid financing mechanisms . . .
Traditional
Charities
Social
Enterprises
Traditional
Businesses
Blended Outcomes
Pure
Social
Outcomes
Hybrid Financing
Vehicles are Required
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Pure
Financial
Outcomes
Financing Social Change: Hybrid Financing Tools
Each of the traditional sector-silos possess tools that could
be used to create hybrid investment vehicles . . .
Private Investors

Provide access
to capital and
assist in
assessing
financial risk
Government

Offer effective
tax incentives
based on an
assessment of
overall returns
to society
Charitable
Organizations

Foundations
offer loan loss
reserves or
guarantees

Charities help
assess social
benefit
Success is measured in terms of “Social Return on Investment”
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However 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.
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
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These countries
have built up
successful track
records over the
last 10-20 years.
The 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.
Energywise Recycling (UK)
Triodos Bank & Charity Bank
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Progress 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
Key impediments –
 Unfavourable
regulatory
framework
 Narrow
political and
cultural norms
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
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 Lack
of innovative
investment vehicles
 Investor
resistance
Underinvestment in Hybrid Approaches: A Vicious Cycle
And few chances
to overcome . . .
Dearth of Hybrid
Investment
Institutions
Less Risk
taking and
Innovation
And. . .
Limited Hybrid
Investment
Expertise
And. . .
Fewer
entrepreneurial
approaches
Leads to. . .
Few Risk Capital
Investment Vehicles
Resulting in . . .
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Why Social Enterprise: Creating a Positive Cycle
And attracts
new . . .
Social Investors
Greater social
returns
Develop . . .
New Risk Capital
Vehicles
Which
creates. . .
Risk taking and
Innovation
Entrepreneurial
Solutions to
Social Problems
And allow . . .
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Which
encourage . . .
Vartana – a social sector focused financial institution
The Bank will significantly enhance the
options available to Canada’s voluntary
sector:
A registered
charity
• By creating an innovative charitable
financial institution built with the sector to
better meet its full range of financial
service needs
AND
• By strengthening voluntary sector
organizations, helping them become more
effective and innovative in fulfilling their
missions
A bank
• By building relationships and support
across Canada’s voluntary sector,
regulatory and business communities
• By establishing a new bank that is
economically viable and fits within current
policy frameworks
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Vartana – 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 longterm planning are at the heart of realizing their full
potential to serve Canadians.”
- Voluntary Sector Initiative
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Vartana – the proposed products/services
…and, in the future, additional
financial products and services
Traditional banking products tailored
to the sector’s needs…
Loans and guarantees:
Cash management:
• Working capital loans
• Disbursement services
• Short term bridging loans
• Automated information and reporting
systems
• Underwriting for a fund-raising programme
• Final step loans so a project can go ahead
• Lockbox
• Loans for capital equipment
• Electronic payments
• Mortgage loans
Investment expertise:
• Renovation loans
• Investment and advisory services
• Credit cards
Deposit products:
Employee Benefits:
• Chequing accounts
• Group medical and dental
• Savings accounts
• Group non-medical and life
• Term accounts (e.g., GICs)
Payroll Services
Financial advice and information
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About SCP
Our Mission
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
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About SCP
Our Investment Approach
Using the
principles of
venture capital
• Risk capital
• Deep
engagement
• Management
support
And create a
network of
successful
enterprises
across Canada
To invest in high
potential social
enterprises
• Growth
oriented
• Cross pollinate
ideas and best
practices
• Profitable
• Engage
communities
• Strong job
creation per
dollar invested
• Make the
concept
“mainstream”
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That ultimately
employ
thousands of
people
• Provide a
positive
alternative to
social
assistance
• Make long
lasting
changes in
communities
About SCP: Results from our Portfolio Companies
$12,000
$10,000
Non-Target
Employees
Portfolio
Company
Revenue
$8,000
$6,000
Target
Employees
Portfolio
Company
Operating
Profits
$4,000
$2,000
$0
Individual Portfolio Companies
Target Employees: 260
Total Employees: 400
Portfolio Company Revenue: 10.6M
Portfolio Company Profits: 600k
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What can you do about it?
Key Messages

Private sector


Charities/NFPs


Foundations


Government

Look for ways to be catalysts for blended return projects
Think with both a business and a charity hat on more
frequently
Learn and speak a blended return language
Consider possibilities outside a solely charitable structure
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
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
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www.socialcapitalpartners.ca
www.vartana.org
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