Session 1: Welcome & Social Sector Access to Finance Session 2: Social Investment and Match Funding Session 3: Social Investment Tax Relief Session 4: Details of RfP Session 5: The View from the Frontline

1. CROWD MATCH FUND
KICK-OFF WORKSHOP
Big Society Capital
November 2015

2. INTRODUCTION AND AGENDA
2
Time Session Speakers
08:45 – 09:00 Arrival and coffee
09:00 – 09:20
Welcome and Agenda
Social Sector Access to Finance
Ben Warren, BSC
Melanie Mills, BSC
09:20 – 10:00 Social Investment and Match Funding
Ben Warren, BSC
Peter Baeck, NESTA
10:00 – 10:30 Social Investment Tax Relief Simon Rowell, BSC
10:30 – 10:45 Coffee
10:45 – 11:45 Details of the ‘Request for Proposals’ + Q&A
Ben Warren, Simon Rowell, Marcus Hulme,
Malavika Raghavan (all BSC)
11:45 – 12:30 The View from the Frontline
Matt Fountain, Freedom Bakery
Simon Rowell, BSC
12:30 Close
Agenda for Crowd Match Fund Kick-off Workshop for Alternative Finance Platforms

3. SOCIAL SECTOR ACCESS TO FINANCE
WHAT DO WE KNOW
Melanie Mills, Big Society Capital
November 2015

4. SOCIAL SECTOR ACCESS TO FINANCE
4

5. FACTS, STATS & LEVELLING THE PLAYING FIELD
WHY DO WE NEED SOCIAL INVESTMENT TAX RELIEF ?
Lack of appropriate finance: 63% of social enterprises seek
long-term loans and 48% want funding with a mix of debt and
equity
Barrier to growth: 48% of charities and social
enterprises identify a lack of available and affordable
finance as the single largest barrier to their
sustainability, versus 33% of SMEs
0
200
400
600
800
2011 2015
Risk
capital
Secured
lending
Charity
Charities/ Social
Enterprises
SMEs
EIS and VCTGift Aid
EIS and VCT provide incentives for equity investment into
SMEs, but few social enterprises and no charities can
benefit because of legal form
Gift Aid provides relief for donations only
GAP
73% of prospective high-net-worth investors have
indicated tax relief is key incentive to invest in social
investment products4
New£

6. GET SITR CAMPAIGN
•MASS EDUCATION
–Email, events, resources, media
•ADVISORS & PROVIDERS
–Awareness, knowledge & expertise
•MARKET LEADERS
–Support for first 30 deals
–PR, legal, research, strategy, tax

7. WHO’s GOT IT?
FairShare South West
Ambition East Midlands
FC United of Manchester
Aspire Gloucestershire
40-75k
275k
PIPELINE PIPELINE

8. CROWD MATCH FUND KICK-OFF
WORKSHOP FOR ALTERNATIVE FINANCE
PLATFORMS
Peter Baeck, Principal Researcher, Nesta
@peterbaeck

9. CENTRE FOR INNOVATION
IN FINANCE

11. What is matched crowdfunding
Ways of funding projects and organisations
through mixing and matching institutional
money with funding from ‘the crowd’
In first Top up Real time

12. Lots of ‘informal’ matching

13. Lots of experiments and activity in the UK
and internationally
Lots of UK and international
experiments and programmes

14. Crowdfunder and Creative England –
queen of code
• Projects need to upload a
Crowdfunder project (min.
£2k target) to raise funds
from their communities.
• Once the projects have
funded, the five successful
campaigns with the most
supporters/backers will
each receive £3,000 on top
of their crowdfunded
projects.

15. British Business Bank and Funding
Circle
BBB provides the last 10%
of loans to SME’s via
Funding Circle.

16. Voordekunst
Dutch platform
Voordekunst uses a
combination of public and
private funds to support
crowdfunding campaigns by
giving projects a 25 - 30%
investment provided that
the crowd donates the
remaining amount

17. Danish Government – matched grants
Danish central government,
have set up a match fund in
as part of their support for
start-ups.
Companies who have raised
approximately £50.000
through a reward-based
platform of their own
choosing, can seek a match
funding grant of between
£50,000 and £146,00

18. • Identifying new investment opportunities
• Better market intelligence / Using the crowd
to identify good projects
• Leveraging – directing more investment
towards particular areas
• Better public involvement in
spending/investment decisions
• More skin in the game from ‘the crowd’ with
opportunity for non-financial benefits
Why is this so interesting?

19. Lots of experiments and activity in the UK
and internationallyMatchfund design considerations

20. Lots of experiments and activity in the UK
and internationally
Design questions
1. Area of focus
2. How and when to provide a match
3. Managing expectations
4. Measuring impact

21. 1.Focus
• Geographic or themed focus?
• Large or small scale raise?
• Projects or organisations?
• Large or small number of raises?
• Type of fundraiser

22. 2.How and when?
• Through one platform or many?
• Up-front, top-up or real time?
• % size of match?
• Under what financial conditions?
• Under what funding/selection criteria?
• Who manages the fund – platform or funder?
• Should this relate to existing funding streams?
• What will the funding window be?

23. 3.Managing expectations
• Setting realistic financial targets
• Maximising non financial opportunities
• Most beneficial length of campaign
• Managing failure to raise the funds
• Support function for interested projects and
organisations?

24. 4.Impact
• What does success look like?
• How is that going to be measured?
• Desired impact beyond the matches (market
making, learning etc.)

25. Questions?
peter.baeck@nesta.org.uk
@PeterBaeck

26. Social investment tax relief
What it is and how its working

27. Why do we need Social Investment Tax Relief ?
2
Lack of appropriate finance: 63% of social enterprises seek
long-term loans and 48% want funding with a mix of debt
and equity
Need : Facts and Stats
Growing demand, from the social sector for higher risk
capital will increase significantly to about £550m by 2015
Barrier to growth: 48% of charities and social enterprises
identify a lack of available and affordable finance as the
single largest barrier to their sustainability, versus 33% of
SMEs
0
200
400
600
800
2011 2015
Risk
capital
Secured
lending
£mp.a
SITR levelling the playing field for tax incentives
Charity
Charities/
Social
Enterprises
SMEs
EIS and VCTGiftAid
EIS and VCT provide incentives for equity
investment into SMEs, but few social enterprises
and no charities can benefit because of legal form
Gift Aid provides relief for donations only
GAP
73% of prospective high-net-worth
investors have indicated tax relief is
key incentive to invest in social
investment products4
New£

28. What is in in for me?
• Unlock large amount of new capital
• Help identify new investors/partners with
connection to social issue
• Better investment terms? Tax relief may
enable lower risk-adjusted interest rates
(no minimum rate of return)
• More appropriate products available –
simple debt products, per Charities
• Other more sophisticated products (such
as combinations of mortgages and
unsecured debt) may also be helped
3
Charities and social enterprises Investors
• Provides an opportunity to increase
support to charities and social enterprises
they already know or support
• Product has ‘look and feel’ of Enterprise
Investment Scheme
• Access to new products (debt products
available in SITR but not under EIS)
• Up-front income tax relief (30%)
• New sectors (such as health and social
care & finance)
• Diversified returns
(1) Worthstone and Wragge & Co. , The Role of Tax Incentives in Encouraging Social Investment (2013)

29. Whocan benefit from SITR?
4
No. Question The investee organisation is eligible if it:
1 Legal Status Is a registered charity, IPS Community Benefit Society or Community
Interest Company? AND
2 Size Has less than 500 employees AND
Less than £15m assets AND
3 Activities Not undertake any excluded activities, being: electricity generation,
property development, personal lending
No. Question The investment is eligible if:
4 Type It is either of:
- Shares OR
- Debt that is:
o Not secured by any assets AND
o Does not repay the principal in first 3 years AND
o Is not preferred to any other investment instruments on wind-
up AND
5 Size The tax relieved amount is no more than £290,000 (approximate
calculation) AND
6 Other relief It has not received tax relief already (through EIS or VCT) on the same
investment
No. Question The investor is eligible if:
7 Investor It is an individual paying tax in the UK AND
8 Structure The investor invests either:
- Directly OR
- Through a nominee fund
8 Eligibility Test Steps:
Investee
(your organisation)
Investor
Investment

30. Social Investment Tax Relief (SITR): Just over a year after it
became law, public deals and funds starting to emerge
£270,000 equity (form of loan-notes)
from 19 investors to help develop
stadium and community facilities
£70,000 debt from small group of angels
(one angel finally committing)
£100,000 from five individuals to
deliver a social impact bond for local
youth through three local charities
P3, YMCA and The Y
£50,000 investment from five
individuals for a social impact bond
to work with 150 young people from
Gloucestershire
Five deals completed in the first year of operation Two funds already launched focused on local areas
Launched SITR fund in Bristol to
invest up to £5m in local social
enterprises. Partner with UBS to
help with distributing fund through
wealth manager network. Plans for 6
to 8 more funds, including next fund
in Manchester
Launched SIS community capital as a
SITR fund to raise £500,000 from
investors to invest in Scottish social
enterprises
Launched by Social Finance and Kin
Capital to raise £3m to improve the
lives of children, young people and
vulnerable people across the UK.
£60,000 investment from six
individuals to help run a social
enterprise bakery in prison in
Glasgow to help offenders get a
decent job after release
At least 3 deals currently (publicly) seeking capital
£280k
community
shares
£75k community sharesUnknown
community
shares

31. GET SITR CAMPAIGN
• MARKET LEADERS
– Support for first 30 deals
– PR, legal, research, strategy, tax
• ADVISORS & PROVIDERS
– Awareness, knowledge & expertise
• MASS EDUCATION
– Email, Events, Resources, Media
6

32. Significant interest forecast for SITR over next period by
smaller organisations
Stage No.
organisati
ons
Total
capital
Total
investors
Comments Source
Deals done
– public
5 £550,000 36 Loan note,
loans, 2 x
SIBs,
Public
Deals done
– not
public*
3 £300,000 21 Community
shop, day
care,
personal
delivery
BSC
discussions
Deals in
process**
14 £933,000 98 Community
assets
BSC
discussions
Considering
***
75 £2,500,000 525 Range GET SITR
list
Total £4,283,000 680 ESTIMATE
Applying for
advanced
assurance
>40 HMRC
*Based on average SITR investment size of £100k and 7 investors
**2/3 expected to complete
***1/3 expected to complete
£0
£500,000
£1,000,000
£1,500,000
£2,000,000
£2,500,000
£3,000,000
£3,500,000
£4,000,000
£4,500,000
Deals done – public Deals done – not
public*
Deals in process** Considering***
SITR forecast capital raise
Total capital Cumulative
Forecasts suggests £5m could be raised over next 12 months… … across 75 different organisations
Tax year 15-16 16-17 17-18 18-19 19-20
Income tax foregone (£m) 0 10 15 25 25
SITR raised (£m) £0 £33 £50 £83 £83
HMT predicted 0 tax raised in first year, so surpassing expectations
Enterprise Investment Scheme raised £4m from 77 companies in first full year
(93-94) Source: EIS Statistics, HMT
Source: Budget, HMT, 2015
Roughly consistent with start of life at EISs

33. 8
Many mainstream fund managers are interested in SITR,
with a few early adopters waiting until size limit increase
50%
14%
36%
Fund manager SITR interest
Fund manager SITR
interest
Disinterested
Possible
participants
Early adopters
Significant % of early adopters within fund managers
At least 7 funds would consider setting up a social VCT
Most fund managers need to make investments >£1m per deal
Strong client demand and good business lead early
adopter interest

34. SITR is going already however slower than expected size
increase means focus shifts towards getting small deals done
Mar
2013
Mar
2014
Dec
2014
Budget 13
Announced
Budget 14 –
legn launched
– 6 April
scheme
operational
The social investment tax relief timeline
From now, there are three big outstanding issues for SITR
NOW Likely
approval for
size increase*
July
2014
SITR becomes
law (royal
assent)
Nov 15
Size limit increase
• Commitment by HMT to seek EC approval to raise size limit in Autumn statement 14 (Dec 14)
• HMT delayed seeking approval because prioritised EC approval for EIS and VCT – only started
working on in Oct 15
• EC approval as ‘new market’ rather than risk capital – therefore takes longer as sets precedent
Social VCT
Govt
commitment
to social VCT
and increase
size limit to
£5m
Apr 16 Nov 16 Mar 17
Social VCT
law*
* Based on verbal public statements from HMT
Community energy
eligible for SITR
• Commitment by HMT to legislate for social VCT in Autumn statement 14 (Dec 14)
• HMT delayed work on social VCT because of resource constraints and lack of evidence in
demand for social VCTs by current VCT managers (BSC subsequently provided further evidence)
• EC approval as ‘new market’ rather than risk capital – therefore takes longer as sets precedent
• HMT in Dec 14 transfer community energy from eligible for EIS to SITR once limited is raised
• HMT in Mar 15 extended time for transfer for 6 months following SITR change
• In Oct 15, community energy removed from SITR from Nov 15 and still not eligible for EIS
• Unclear if opportunity to reverse this decision, but advocacy ongoing
Oct 15

36. SOCIAL IMPACT OVERVIEW
Marcus Hulme, Big Society Capital
November 2015

37. QUESTIONS
2
1. What is social impact
2. What is our Social Impact Approach?
3. What social impact information will we need for the Crowd Match
Fund?

38. WHAT IS SOCIAL IMPACT?
3
Social impact is the change (positive or negative) that happens
as a result of an activity.
Investment
Social
Sector
Organisation
Impact
Our social impact priority is to grow the social investment market to
support vulnerable and disadvantaged people in the UK.

39. BSC’S IMPACT APPROACH
Impact
Infrastructure
Impact evidence
informs all our
investment
decisions and we
understand impact
risk.
Gathering
evidence from
deals about the
impact being
delivered and
being open and
transparent
Support and
resources of
impact
measurement in
the social
investment market.
Using impact
evidence to
influence key
stakeholders,
share best practice
and grow the
market.
Delivering
Impact
Building
Evidence
Sharing learning
As market champion
Connect
knowledge and
networks
Communicate
research and
tools
Build broader
supporting
environment
As investor
Find and
develop new
proposals
Assess and co-
develop ideas
Portfolio
performance
management

40. ASSESSING IMPACT

41. MONITORING IMPACT
Content on our website:
1. Our Social Impact
approach
2. Investor best practice
3. Social sector guidance
4. Social Impact FAQs
5. Social Impact Resources
6. Social Impact Reports
7. Social Impact Providers
8. Outcomes matrix
Each deal reports key impact data on frontline organisations including mission,
beneficiary group, outcomes, indicators and targets if applicable

42. CROWD MATCH FUND OUTLINE IMPACT REQUIREMENTS
7
1. SITR eligibility.
2. Public benefit test (inclusive accessible, affordable).
3. Key information gathered as part of registration process on the
platform (e.g. mission, outcome area, geography, beneficiary
group)
4. One metric for one outcome for each organisation tracked over
time and reported back by the platform to us on an annual basis.

43. CROWD MATCH FUND PROCESS
DETAILS OF THE RFP AND Q&A
Ben Warren, Big Society Capital
November 2015

44. 9
1. Process and Timeline
2. Request for Proposals format
3. Scoring Criteria

45. 1. PROCESS AND TIMELINE
10
1. Open Request for Proposals (RfP) window – 30th November - 15th January
2. Shortlisted Proposals to IC – 27th January
3. Open Day Surgery to refine final proposals – 26th February
4. Final full proposals taken to IC – 16th March

46. 2. REQUEST FOR PROPOSAL FORMAT
11
Experience
Background of running an
alternative finance
platform
Delivery
Proposed approach for
using the match fund,
including:
• percentage match
• proposed product type
Forecast/ Pipeline
Fund financial forecast,
including detail on:
• No. of borrowers and
lenders
• Value of investments
• Default and repayment
rates
Each application will be judged against the following criteria;

47. 3. SCORING CRITERIA
12
Each application will be judged against the following criteria;
Social Impact
A commitment to
measuring and monitoring
social outcomes
Forecasts
A clearly articulated
proposal for how to
develop a pipeline of
borrowers and lenders
Delivery
A strong management
team and business model
Previous experience and
innovative approaches

48. Matt Fountain, Director

49. Who Are we?
Freedom Bakery C.I.C. is a start up
social enterprise established to train
prisoners and ex-offenders on the
job within in an artisan bakery.

50. Partnership with HMP Low Moss
1st ever social enterprise partnership
with the Scottish Prison Service
4 years with option to extend for 36
months
Includes a café concession which on
current trading history will trade
£500,000 over the next 4 years.
Taken with our diversified revenue
streams we currently project a
turnover of £760,000 for this cost
centre.

52. Competing with the mainstream..

53. Efforts like the
Freedom Bakery
should be supported,
replicated and scaled.
Richard Branson

55. www.bigsocietycapital.com
Big Society Capital Limited is registered in England and Wales at Companies House number 07599565. Our
registered office is 5th Floor, Chronicle House, 72-78 Fleet Street, London EC4Y 1HY. Big Society Capital is
authorised and regulated by Financial Conduct Authority number 568940.