Social Stock Exchange | 23rd July 2009

The Social Stock Exchange

An Investment Initiative in Capitalising Social Businesses

Mark Campanale

TBLI Conference November 2009

Social Stock Exchange | 23rd July 2009

Why do we need a “Social Stock Exchange?”

“There is a lot of seed capital available, angel-equivalent, for social entrepreneurs. But there is not a lot of later-stage funding available to take social entrepreneurs to scale.

There a huge gap in the social capital market that’s preventing many of the best models from replicating and fulfilling their potential.”

Linda Rottenberg, Endeavour Global, (Skoll Foundation/Sustainability 2007)

Social Stock Exchange | 23rd July 2009

Socially Motivated

Commercial Investors

Foundations and Social

Financial Institutions

Senior Debt

Subordinated Debt

Private Equity and

Grant Capital

Stratified-Risk Capital Structure

Before Financing

Social Venture

Service Delivery to

the social sector

Paying Customers

Investment Capital

Social Venture

Paying Customers

Cash Flows Service Delivery

Improved Service Delivery to

the social sector

After IPO Financing

Scale-Up of Social Finance

Public traded equity

Social Stock Exchange | 23rd July 2009

Addressing the Equity Gap

Grant Venture philanthropy

Patient capital

Bank loan

Quasi equity

Social equity

offering

“Going Public” An IPO Initial Public

Offering

Social enterprises are likely to require equity finance as they evolve

Social Stock Exchange | 23rd July 2009

Now lots of asset managers in the social sector!

Social Stock Exchange | 23rd July 2009

What social investors actually do?

• Social Finance Advisory institutions

• Debt based institutions – eg loans from banks

• Pre- IPO ‘social impact’ funds for social enterprises (but all small relative to the market)

• Equity – eg stock market based institutions – the land of the ethical funds… small

Looking at that list…..

Lots of energy. Not much scale

Social Stock Exchange | 23rd July 2009

Creating a Social Stock Exchange

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Meantime, what happened to social impact businesses?

Lack of capital routes for expansion or exit?

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Future – creating a social capital market

• Translation issue – do current markets meet the needs of social enterprises?

• Search: Can social investors easily find social investments?

• Regulatory framework: Is it favourable to social investors and social enterprises?

• Connecting: Is better sign-posting required?

“It is now beyond urgent that we create a new social financial services sector” Bill Drayton, Ashoka

Rockefeller Foundation funds research into a ‘Social Stock Exchange’.

Social Stock Exchange | 23rd July 2009

The Social Stock Exchange

A platform that allows trading of securities in social enterprises (SE’s) on a Financial Services Authority (FSA) regulated stock exchange

The SSE is designed to provide companies access to capital – specifically risk capital – for organisations that are for-profit social purpose businesses:

•Health, leisure, transport, social housing•Green- and ethical consumerism •Cleaner technology.

SSE provides a market mechanism that provides

•Price discovery as well as valuation and trading of shares •Entry and exit route for investors’ social investments •Platform to launch investment schemes for the public

Social Stock Exchange | 23rd July 2009

Partnering with an existing stock exchange provider, Plus Markets.

Building a network of ‘social’ nominated advisors (SNOMADs) akin to the successful NOMAD model used on AIM, London’s junior market.

A robust principles-led admissions criteria has been developed that involves:

An issuer’s sponsorship on the exchange by a SNOMADA social audit as an addendum to the Prospectus Vetting by an admissions panel Ongoing disclosure obligations relating to the issuer’s social impacts Social Key Performance Indicators (KPI’s).

Admissions Summary

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Businesses likely to gain access to a Social Stock Exchange

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The Social Stock Exchange: a capital market that supports the social business sector

Social Stock

Exchange

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Building a social capital market

• General Medical Clinics plc - primary medical care, general practice and health screening under contract with Department of Health including an NHS Walk-in centre

• Adili plc, the online ethical fashion sells £1.5 million of stock on AIM - business accessories sourced under fair trade, organic and socially responsible principles

• CareTech plc provides quality housing and support services to more than 1200 adults and children in 141 homes, with a range of learning and physical disabilities

• Stagecoach Theatre Arts plc teaches children skills for life, such as confidence and communication, through the performing arts.. Each week every student is taught one hour of dance, one hour of drama and one hour of singing.

Stock market examples…

Arts, health, ethical fashion… a “social” capital market

Social Stock Exchange | 23rd July 2009

Commonly asked questions about the Social Stock Exchange

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FAQ 1

Why not encourage social enterprises to list on one of the existing exchanges?

Some social purpose businesses already list on some of the existing UK exchanges but have to date lacked visibility, liquidity, and have not proved easy to find by interested social investors. The SSE will operate to a standard that would be attractive to both social investors and companies seeking capital.

Most, if not all, public markets attract speculative investors at the IPO and later stages, leaving the social entrepreneur in fear of their company facing corporate mission-drift by unaligned investors.

Aggregation of these mission-oriented businesses on a specialist exchange reduces the cost-of-search for social impact investors and permits easier and targeted coverage by equity analysts interested in the sector, driving down transactions costs for all – including corporate brokers, market-makers and social impact investors.

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FAQ 2

What is unique about the Social Stock Exchange?

A clear, differentiated primary listings and secondary trading venue with a compelling message for social purpose businesses seeking an Initial Public Offering and a primary and secondary marketplace for social purpose investors seeking to invest in the same

RIE status unlocks institutional SRI and charities’ and family offices’ investments (mission-connected, mission-related, and programme-related), and provides confidence for the retail investor and allows development of pooled fund products

Synergy with major SE initiatives: the Global Impact Investor Network, social finance and social investment banks, Futurebuilders and other similar UK Government fund initiatives

The primary RIE for the trading of other social investment instruments such as microfinance bonds, as well as developing an exchange listing opportunity for CIC’s (Community Interest Companies) and Industrial Provident Society securities.

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FAQ 3

What is the difference between this and other “Social Stock Exchanges”?

The SSE is an RIE whose purpose is to enable for-profit social purpose businesses to raise capital. We admit and list fungible, tradable securities – with an attendant secondary market – as authorised and regulated by the UK’s financial regulator.

Unlike other “social exchanges”, the SSE is not a philanthropic or charitable giving initiative

Social Stock Exchange | 23rd July 2009

FAQ 4

Why not just create an index product?

An index does not help the capital-raising or IPO process for successful, profitable and growing SEs

An index of companies across various exchanges will not offer co-ordinated and consistent authentication, admissions procedures, market rules, and transparency and disclosure obligations

Many social impact and SRI investors cannot invest in companies that are not on an RIE