Lecture 7 Flashcards
Non-profit
No earned income (social mission and donation)
Hybrid non-profit
Mixed earning model (earned income, donation, social mission)
Yunus Social Business
Re-investing dividends (social mission, earned income)
Social Enterprise
Dividend distribution (social mission, earned income, dividend)
Socially responsible business
Focus on the TBL (dividend, earned income, partly social mission)
Traditional business
Profit maximising (dividend, earned income)
Avoid dependencies by…
having as many sources of funding as possible
Equity- third parties holding shares of your company, Raised via…
- Founder, Friends and Family
- Business Angels, Private investors
- Venture Philanthropy Funds
- Social Capital Markets
Benefits of Equity…
- Longterm engagement of investors
- Coupled to performance
- No earmarking
- Non-financial support (know-how network)
- Better cash position
Downsides of Equity…
- Investors have a say!
- No tax benefits
- Due diligence and reporting needs
Debt financing is when somebody lends money for a yield, the versions are
- Loan
- Balloon loan
- Micro credit
- Leasing
Benefits of debt financing
- No release of shares
- No agency expressing opinion
- Scope for design regarding duration, repayment etc.
Downsides of debt financing
- Only small amounts due to collateral
- Bank do not understand TBL business plan
- Reputational risk
Donating finance is when the X gives money for philanthropic causes, versions are…
- Classical donation
- Transitory donation
- Recoverable grants
Benefits of donating finance
- Not refundable, no claims
- Definitive money transfer
- Risk mitigation
Downsides of donating finance
- High uncovered costs
- Might be bidding via appropriation/earmarking
- Timing?
- Net value
There is a market for social finance…
- Social banks
- Social investment
- Social stock exchanges
- Social venture capital funds
- Donor consulting
Think from an investors’ perceptive
Goals, needs, rights, their stakeholders, tax, pride, psychology, public relations, strategic fit… and EXIT
Think from a social venture perspective
Timing, opportunity costs, independence, impact, values, succession, risks, growth, leadership and satisfaction
What is impact investment?
Generally a smart, financial, and direct investment (equity, loan, mezzanine) into a private company. It can be both for or not-for-profit.
What does an impact investor expect?
To gain return on impact AND financial investment with no loss to the initial sum.
How to GO into the market?
- Impact investing and social finance are not just another asset class
- Smoothly test, e.g. get involved in some Crowdfunding
- Finance an organisation NOT just project
- Do equity deals via an intermediary
- Consider collective impact strategies
- Impact driven investment strategy ideally consist of a mix of early stage philanthropic start-up investment and later stage impact investment e.g. via a fund
