social investment mechanism 12 03 09

“Not for Loss” Social Business Finance

Social Investment Mechanism Workshop

Chris Cook , Bristol

12 March 2009

Capital Partnerships and other Animals

There are two ways of raising finance......

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....Credit and Investment

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Investment is either through a Limited Company....

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....a 19th Century legal dinosaur

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...or loans secured by legal claims eg mortgages

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But there’s a new furry animal out there....

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...the 21st Century Limited Liability Partnership (LLP)

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An LLP is a corporate body with limited liability....

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...and...errrr...that’s it!...

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As far as the Tax Man is concerned it is a Partnership

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It’s an “Open” Corporate where we can work with each other

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... even without a written agreement

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It enables “Peer to Peer” Finance: P2P Credit and P2P

Investment

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Peer to Peer Credit – the Guarantee Society

Sellers BuyersBuyers

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Pool

ServiceProviderServiceProvider

Services Fee

Fee

Guarantee Guarantee

Fee

Value

Credit

A mutual guarantee of P2P “trade” credit backed by payment into a Default

Pool

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A Credit Clearing Union alternative to unsecured bank

credit

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P2P Investment - Capital Partnership

Capital PartnershipCapital Partnership

InvestorsInvestors

CustomersCustomers

Managers

CustodianCustodian

% %

£

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Capital Partnership – direct Peer to Peer investment in productive assets

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“Equity Shares” - % age shares in revenues or production...

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...or Units - redeemable in production

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Example: “The Art of Flirting” – a film incorporated as an LLP

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The actors received “nth’s” of the gross revenues...

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...I got 5%...and the producer the rest...

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...except that we needed lights, cameras, pizza, coffee......

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Two Capital Partners invested £10k for 20% of revenues....

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...if there are any

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Art of Flirting LLP

Art of Flirting PartnershipArt of Flirting Partnership

Financial Capital(Investors)

Financial Capital(Investors)

ViewersViewers

Human Capital(Actors, Producer, Me)

CustodianCustodian

% %

£

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Everyone was on the same side

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Example: Albion Trust...a charity

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..who provides affordable office space for social enterprises

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...due to demand they bought a disused church next door

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...and plan a £4m development

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But if they borrow, the rents will be unaffordable

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Solution? An Albion Partnership?

Albion PartnershipAlbion Partnership

InvestorsInvestors

TenantsTenants

Managers

CustodianCustodian

% %

£

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Example: a community wishes to build a wind turbine...

Energy Pool

TurbineTurbine

InvestorInvestor

CommunityCommunity

Manager

CustodianCustodian

Energy Energy

Energy

Managers receive %age of production

Suppliers may invest equipment & materials: must invest agreed % profit

Investors provide development Capital by purchasing redeemable Units

Outcome: turbine financed by selling <40% of production.

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Example: a mapping company

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...converted to a mapping LLP...

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...to bring in marketing and development partners..

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...unfortunately, the partners fell out...

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...and it all went Pear-shaped

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The Capital Partnership aligns stakeholder interests....

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...but it’s not a magic bullet

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Conventional Finance requires binding contracts....

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....partnership finance requires consensual agreement...

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...but there may be no magnetism..

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A Capital Partnership is not an Organisation...

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...it does not own anything, do anything, employ anyone, or contract with anyone...

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...it is simply a framework within which the stakeholders self organise ...

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There is no Profit and no Loss within a Capital Partnership

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I believe it achieves Yunus’ Not for Loss Social Business ideal

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Thank You

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