blake lapthorn’s green breakfast seminar on social finance - 27 march 13

INTRODUCTION TO SOCIAL FINANCE ANDOUR WORK

Annika Tverin, Director

[email protected]

MARCH 2013

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©Social Finance 2012

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SOCIAL FINANCE IS PASSIONATE ABOUT IDENTIFYING NEWWAYS OF TACKLING ENTRENCHED SOCIAL ISSUES –

WAYS WHICH ARE SUSTAINABLE AND SCALABLE


Change the way government seeks to tackle problems

Help build and support growth of strong, effective social enterprises

Expand the range of investors able to participate in social

investment

WHAT DO WE DO?

IN ORDER TO

AND THEREBY DELIVER SOCIAL CHANGE

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OUR ROLE IN THE MARKET 4

SOCIAL FINANCE DESIGNS FINANCIAL STRUCTURES THAT ENABLE MORE CAPITAL TO REACH THE SOCIAL SECTOR

Research & Development

Financial StructuringCapital Raising

Social Finance

Government Social Service Providers

Investors

Key social issues

Social Investor Market Growth

Supporting Effective Organisations

Long-term Social Change


THE STARTING POINT: CONSISTENT UNDER-INVESTMENT IN PREVENTION

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Higher level of spending

on crisis interventions

Poorer social outcomes,

more require crisis

interventions

Fewer resources

available for early

interventions

CAN THE LONG TERM SAVINGS FROM AVERTING POOR OUTCOMES BE USED TOINVEST IN PREVENTATIVE SERVICES?


SOCIAL IMPACT BONDS CATALYSE POSITIVE CYCLES OF GOVERNMENT SPENDING, IMPROVING SOCIAL OUTCOMES AND REDUCING COSTS

6SOCIAL IMPACT BONDS CAN UNLOCK THIS

SOCIAL IMPACT BONDS

Money to invest in earlier

interventions

More early interventions

Better outcomes; fewer individuals requiring crisis interventions

Lower spending on crisis interventions


FUNDING REHABILITATION AT PETERBOROUGH PRISON 7

Providing volunteer support post intensive phase or with lower risk/need clients pre and post release

INVESTORS

£5 million

SOCIAL IMPACT PARTNERSHIP

St Giles TrustSupport in prison, at the prison gates

and in the community

Support to prisoners’ families while they are in prison and post

release

Other InterventionsSupport needed by the

prisoner, in prison and the community. Funded as the

need is identified eg. Lower level mental health

support

3,000 male prisoners sentenced to less than 12 months

Reduction inre-offending

MINISTRY OF JUSTICE/

BIG LOTTERY FUND

Payment based on reduced

convictions

St. Giles Trust Ormiston Trust SOVA Other Interventions

Return depends on success


RECENT PROGRESS

Young people in or on the edge of care

•Awarded contract by Essex County Council to deliver and finance multi-systemic-therapy to over 380

adolescents on edge of care system in Essex over next 8 years – outcomes financed by savings from

reduction in care placements

•Advising Manchester City Council on options to raise social investment to fund multi-dimensional

foster care working with vulnerable adolescents

Improving education and employment prospects for young people

•Awarded two contracts by Department of Work and Pensions to work with specific groups of 14-16

year olds with outcome payments made at agreed milestones

Prisoner rehabilitation

•Chris Grayling has announced an intention to look at the feasibility of rolling out outcome based

rehabilitation projects nationwide

Homelessness

•Advising Greater London Authority on procuring interventions to address rough sleeping financed by

£5 million outcomes budget

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BUILDING THE INVESTOR BASE


ENGAGING WITH KEY POOLS OF INVESTOR CAPITAL 10

INSTITUTIONS CORPORATESHIGH NET WORTH

INDIVIDUALS

MASS AFFLUENT

TRUSTS AND FOUNDATIONS

£70bn assets in UK

Investor Advisory Services

Global Social Impact Fund of Funds

Venture Capital Trust

NEAR TERM FOCUS MEDIUM TERM FOCUS

Investors

Intermediaries

Could philanthropy be an asset, not an expense in their balance sheets?

Enterprise Investment Scheme as a wrapper for SIBs

STRUCTURED FUNDS

ISAs £92bn£488 bn

Early signs of Local Authority Pension Funds interest.

The Results Fund

BIG SOCIETY CAPITAL SEEDED FUNDS

Impact Ventures UK FundNesta Impact Investment Fund

Specialist VCT: Social Impact March 2013

SOCIAL IMPACT VCT plc

Two worlds. Brought together. Investing for social impact and financial return.

Social Impact Venture Capital Trust (VCT)

Type Specialist, 8 year planned exit VCT

Size £20 million

ManagersFSE Fund Managers Limited (part of the FSE Group)Social Finance

FocusProfitable and/or growth companies delivering measurable social impact

Minimum investment size £2,000

Expected timing For tax years 2012/13 and 2013/14

Summary

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VCT is a well-known product for new market with rising demand

Social Returns: Four Pillars of Social Impact

Building Futures Community Cohesion

Socially-motivatedBrands

Health and Education

Companies engaging with people who are marginalized, vulnerable or disadvantaged to help build their futures.

Companies working in local communities to support cohesion and improve access to services and opportunities.

Companies promotingthoughtful consumerbrands that createtheir products andservices in an ethical orsocially-motivated way.

Companies building human capital by enhancing health and education provision for individuals.

Examples:

Careers Development Group (CDG)CRI

Examples:

Charity Technology Trust (CTT) HCT Group (Hackney Community Transport)Greenwich Leisure Limited (GLL)

Examples:

CafédirectDivine ChocolateJustGivingJoJo Maman BébéTimpson

Examples:

Bromley HealthcareCentral Surrey HealthAvenues GroupCool2Care

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Commercial revenues generating profit for social purpose

Financial Returns: Income and Return of Capital

Investment Type Returns Capital Repayment

Established Social Enterprises

Current Yield: HighExit Yield: Low / Nil

Non-Exit: Refinancing / recapitalisation Exit: Pre-commitment-to-find buyer Capital gain unlikely to be main driver of return

Contract-underpinnedSocial Enterprises

Current Yield: HighExit Yield: Low / Nil

Non-Exit: Refinancing / recapitalisationExit: Pre-commitment-to-find buyerCapital gain unlikely to be main driver of return

Early-stageSocial Enterprises

Current Yield: Medium / LowExit Yield: High / Medium

Non-Exit: Refinancing / recapitalisationExit: Commitment-to-find buyer - or -core business saleCapital gain may be material component of return

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Investment policy:• Capital preservation focus• Returns driven by “current yield”• Repayment driven by “non exit” or “managed exit” events

Focus on established and/or contract underpinned enterprises

Worked Example: Bromley Healthcare

Business Model Social Returns Financial Returns Investment Structure

Short term – better run community services (Nursing and therapy services) in Bromley, increasingly specialised services to avoid hospital admissions and speed discharge. Mid term: Health Management Model delivering health outcomes on a payment by results model.

Formed by 800 staff ‘spinning-out’ of the NHS to form a new community interest company (C.I.C.)

Community health, e.g.

Healing time of leg wounds reduced from 21 to 5 weeks (pilot)

Improved productivity + 15% (18 months) = more patient time

Do not attends 13% - 5%

c.£40M turnover

£10B market (UK market for community health care)

Significant improvement on 1% launch margin

Growth 100% ahead of budget

Variable competition

Assumed investment period of 5 years

Structured with a mix of debt and equity + structured exit

Majority of the return will be linked to the debt instrument

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“Established social enterprises whose revenue streams are expected to be underpinned wholly or partially by delivery contracts”

Social Impact VCT: Offering to the Shareholder

1. Support the growth of socially-motivated companies which make a distinct positive contribution to improving UK society

2. Capital preservation and predictable cashflows due to focus on established companies and using debt-like, VCT-compliant structures

3. 30% income tax relief in year of investment, tax free dividends and capital gains*

4. Planned-exit – return of capital in years 6, 7 and 8**

5. Dividends planned in respect of the second financial year

*UK income tax payers, aged 18 or over, who acquire no more than £200,000 worth of VCT shares in a tax year. The UK tax treatment of VCTs is on a first in first out basis and therefore tax advice should be obtained before investors dispose of their shares. The income tax relief is given at the rate of 30% on the amount subscribed regardless of whether the qualifying investor is a higher rate or basic rate tax payer, provided that the relief is limited to the amount which reduces the qualifying investor’s income tax liability to nil.

***100p gross less 30p VCT income tax relief. IRR (Internal Rate of Return), i.e. annualised effective compounded return rate, calculated as the rate at which the net present value of costs of the investment equals the net present value of the benefits.

6. Annualised Return of 2-3 % post costs and before any tax benefit to an investor, translating into a target return of 118.5p (tax free) on every 70p net invested***

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**In many cases, it is expected that investment will be held for a 5 year period, structured with a mix of debt and equity, under which the majority of the return will be linked to the debt instrument, which will have a finite life to facilitate Social Impact VCT’s exit from the investment.

Investment Manager and Investment Adviser

FSE Fund Managers Limited(1)

Community Interest

Economic and social impact fund management

AuM £31.8M + Angel Investor Network

Experienced, equity and debt team

CEO: 30+ years funding experience

Head of Equity Funds: 15+ years experience in VC and PE investment

Head of Debt Funds: 20+ years experience in SME lending

Proactive investeemanagement/ support

“Hands on” due diligence and monitoring

Mentor, Coaching and NXD support

Follow on investment: 204 investees raised £116M+additional funding

Accelerator Fund

£14.6m + invested via 173 loans

10% return on investments (pre

overheads, post provisions) via current yield only

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Social Finance Limited(1)

Not-for-profit

Corporate finance advisorImprove access to capital for those driving social change

Social Impact Measurement, monitoring and reporting

Design and delivery of Social Impact Bonds

1st Social Impact Bond (SIB) in September 2010 that funds

interventions to reduce reoffending among short sentence offenders from HMP PeterboroughNow 4 SIBs under management

Capital Raising

£10 million (2010-2012)

Private equity

Robin Black, 27-year career building and managing entrepreneurial businesses

Social enterprise network

Structuring expertise Understanding of socially-motivated companies’ sensitivity around external capital

(1) The FSE Group’s subsidiary FSE Fund Managers is authorised and regulated by the Financial Services Authority. FSA No. 458820Social Finance is authorised and regulated by the Financial Services Authority. FSA No: 497568.

Independent Investment Committee and separate VCT Board

Why Invest?

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•Become a lead investor in this new, growing and exciting market

•Provide capital for successful social entrepreneurs who make a real difference in addressing social issues

•Receive potential projected returns of 2-3% over the life of the VCT, an up-front 30% tax break and tax free dividends*

•Social Impact VCT will be managed by a leading social impact investment management team, with breadth of experience and excellent track record. The team combines investment on commercial principles with in-depth understanding of social impact

Social Impact VCT is an investment to be proud of.

* Assuming £20m capital raise and subject to eligibility

Further Information

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Social Impact VCT website:

www.socialimpactvct.co.uk

Further questions, please contact:

Social Finance Ltd131-151 Great Titchfield StreetLondon W1W 5BB

Tel 0207 667 6370

Marechale Capital Plc3rd FloorNew Broad Street House35 New Broad StreetLondon EC2M 1NH

Tel 020 7628 5582

Social Finance is authorised and regulated by the Financial Services Authority. FSA No: 497568. The FSE Group’s subsidiary FSE Fund Managers is authorised and regulated by the Financial Services Authority. FSA No. 458820

Disclaimer

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This document comprises the presentation of Social Impact VCT Plc (the "Company") concerning the proposed admission to trading on the official list of the London Stock Exchange plc and to trading on the main market of the London Stock Exchange plc. This document is being solely issued to and directed at (a) persons who have professional experience in matters relating to investments and who are investment professionals as specified in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotions Order”); and (b) persons certified by an authorised person as sophisticated investors within the meaning of Article 50 of the Financial Promotions Order (but for the avoidance of doubt not those who are self-certified within the meaning of Article 50A of that Order).This document is exempt from the general restriction on the communication of invitations or inducements to enter into investment activity and has therefore not been approved by an authorised person, as would otherwise be required by section 21 of the Financial Services and Markets Act 2000. Any investment to which this document relates is available to (and any investment activity to which it relates will be engaged with) only those persons described in (a) or (b) above. Persons who do not fall within the above categories of investor should not take any action nor rely upon this document, but should return it immediately to Social Finance (“Investment Adviser”), 131-151 Great Titchfield Street, London W1W 5BB.

It is a condition of your receiving this document that (i) you fall within, and you warrant to the Company that you fall within, one of the categories of person described in (a) and (b) above; and (ii) if you fall within category (b) above, it is a condition of your receiving this document that you warrant to the Company that: (aa) you are a person who has a current sophisticated investor certificate, signed by an authorised person and dated no earlier than 36 months preceding the date of receipt of this document, confirming that, in the opinion of such person, you are sufficiently knowledgeable to understand the risks associated with an investment in an main market quoted company; and (bb) that within the last 12 months you have signed a statement in the terms set out in Article 50(1)(b) of the Financial Promotions Order. If you are uncertain with regards to your eligibility you should seek independent professional advice in this regard.

This document is for informational purposes only and does not constitute nor forms any part of any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any shares in the Company nor shall they or any part of them, or the fact of their distribution, form the basis of, or be relied on in connection with, any contract with the Company relating to any securities. Any decision regarding any proposed subscription or purchase of shares in the Company must be made solely on the basis of the information contained in the prospectus to be issued by the Company (the “Prospectus”). This document is not intended to be distributed or passed on, directly or indirectly, or to any other class of persons. It is being supplied to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any other purpose. Recipients of this document who intend to apply to subscribe or purchase ordinary shares in the Company following the publication of the Prospectus in final form relating to the Company are reminded that any such application may only be made on the basis of the information contained in such document which may be different from the information contained in this document.

No reliance may be placed for any purpose whatsoever on the information contained in this document, nor on its completeness. Any reliance on this communication could potentially expose you to a significant risk of losing all of the property invested by you or the incurring by you of additional liability. No representation or warranty, express or implied, is given by the Company, its directors or employees, or their respective professional advisers as to the accuracy, fairness, sufficiency or completeness of the information, opinions or beliefs contained in this document. Save in the case of fraud, no liability is accepted for any loss, cost or damage suffered or incurred as a result of the reliance on such information, opinions or beliefs. Recipients of this document should conduct their own investigation, evaluation and analysis of the business, data and property described in this document.

If you are in any doubt about the investment to which this document relates, you should consult a person authorised by the Financial Services Authority who specialises in advising on securities of the kind described in this document. Neither this document, nor any copy of it, may be taken or transmitted into the United States, Canada, Australia, the Republic of Ireland, the Republic of South Africa or Japan or into any jurisdiction where it would be unlawful to do so. Any failure to comply with this restriction may constitute a violation of relevant local securities laws.


Disclaimer (cont.)

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Venture Capital Trusts (VCTs) were introduced by the UK Government in 1995 to encourage individuals to invest in smaller UK companies. The Government achieved this by offering VCT investors a series of tax benefits. The total invested in VCTs between 1995 and 2011 was more than £4.2 billion.

The Company is structured as a VCT to allow qualifying investors to take advantage of substantial tax benefits, including 30% income tax relief on the amount invested. The income tax relief means that taxpayers should benefit from a £3,000 reduction in their tax bill for every £10,000 invested, provided that the Ordinary Shares are held for a period of five years. In addition, qualifying investors should benefit from dividends paid by the Company being tax free and no capital gains tax on a disposal of Ordinary Shares. This is only a brief summary of the UK tax position for investors in VCTs and is based on the Company’s understanding of current law and practice. Investors should seek independent tax advice.

Key points to remember about VCTs: •VCTs invest in unquoted shares including new shares of privately owned companies, and new shares of companies that are traded on the Alternative Investment Market (AIM) and PLUS Market. •VCTs are complex and may be higher risk than conventional investment companies. They should be viewed as long-term investments. •Though VCTs offer generous tax benefits, you should not invest in a VCT simply for the tax benefits (also to obtain tax benefits investment should be held for a number of years). •It can be difficult to sell VCT shares on the secondary market, although some VCTs offer a ‘buy-back’ facility. •Past or simulated performance may not be a reliable indicator towards future performance.•As with any equity investment, returns are not guaranteed and you may get back less than you invest or nothing at all in extreme cases. •If you are unsure whether VCTs are suitable for you, you should take professional advice.


blake lapthorn’s green breakfast seminar on social finance - 27 march 13

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