Causeway presentation at the Social Venture Institute - September 8, 2007

1. Diamonds in the Rough
Emerging opportunities
in social finance.

2. quot;Money is a stupid measure of
achievement, but unfortunately
it is the only universal
measure we have.quot;
- Charles Steinmetz
CAUSEWAY: a national collaboration

3. “Social finance” is…
HIGH INVOLVEMENT
Venture Venture
A sustainable approach to philanthropy capital
COMMERCIAL
CHARITABLE
managing money that delivers
social, environmental dividends Traditional
grant Bank
and economic return. making lending
LOW INVOLVEMENT
Adapted from Margaret Bolton, 2003
Grants Patient Capital Pure Equity Equity -like Loans
Expected loss % 100% 20-50% 10-20% 10-20% 1-8%
Return on investment 0 -50%-c.10% No limit Variable up to 30% Fixed 5-18%
Undefined Depends 5-7 yrs Depends on
Term of investment Often short periods Repayment holidays Fixed term
on success success
Involvement in Low (except venture Some (through
High (through board ) High (through board ) Low
business philanthropy ) partners )
Royalty , repayment
Exit of investment n/a Repayment IPO, sale, buyout Repayment
or APO
Liquidation rights None None/subordinate Residual Subordinate First priority
Structured in loan
Voting rights No No Through ownership No
agreement
Adapted from : Bridges Community Ventures , UK
CAUSEWAY: a national collaboration

4. … happens at many levels…
• Investment
– A financial investment that delivers a ‘blended return’
• E.g. a loan issued to a social enterprise
• Product
– Investment vehicles such as bond issues or private equity
funds that combines investors with a variety of objectives
around an investment area that will deliver a ‘blended return’
• E.g. the $20 M EYE Fund
• Catalytic
– (Re)application of financial capital to a specific issue with a
comprehensive perspective that encourages a the
(re)creation of new system for addressing a social or
environmental issue
• E.g. the Great Bear Rainforest
CAUSEWAY: a national collaboration

5. … and is rooted in:
• A change in
conversation
– Control
» Potential ts
en
• Blended value return tm
es
nv
nI
la
u il
Aq
e:
– Conflicted
c
ur
So
» Collaborative
• Cross-silos Government Business
• A change in flow Hybrid
Space
– Linear top-down Charity & non-
» Complex profit
CAUSEWAY: a national collaboration

6. quot;Money.
It's a gas.quot;
- Pink Floyd
CAUSEWAY: a national collaboration

7. It begins with a conversation…
• Aligning interests to create innovative solutions
Constructive Dynamic
R
Source Perspective
eq
n
Use Perspective
ur
ui
et
re
R
m
en
ts
ns
o
i
t
ic
R
r
st
is
k
e
R
Constrictive Dynamic
CAUSEWAY: a national collaboration

8. … results in specific products
• Venture capital
– Capital regional et coopérative Desjardins (CRCD) is a $500 million venture capital fund
created in 2001 by the Desjardins Movement with the help of a provincial tax credit.
Individual investors can invest up to $3500 a year in shares with a 50% tax credit. Shares
must be kept for a minimum of seven years. Mission: to provide capital, expertise and
access to networks for businesses and cooperatives in all Québec’s regions
• Local community development
– The Columbus Foundation used $2 million to seed an $18 million low-cost housing fund to
build 1,600 new units of affordable housing.
• Startup or expansion capital in underserved communities
– Deutsche Bank announced it will create an innovative $20 million investment fund to
finance the expansion of eye care hospitals in developing countries. The Eye Fund I will
provide loans and guarantees to support the development of affordable, sustainable and
accessible eye care for the world's poor while providing a near-market return for investors
• Debt mechanisms
– Milestone achievement of $100m in loans to community finance institutions and social
enterprises by Calvert Foundation’s Community Investment Note
• Acquisition of assets
– BC Pension Funds – 21 BC-based union and management pension funds pooled $27 M to
form Concert Properties in 1989 (originally named VLC) with the objective of financing
affordable rental housing in BC, and creating jobs in the unionized construction industry.
Today the 100% pension plan owned real estate corporation has $800 million in assets,
with a track record of creating 10 million hours of on-site employment for unionized
construction workers.
CAUSEWAY: a national collaboration

9. … and can change whole systems.
• Coming together of the great catalysts
– capital + community
• Great Bear Rainforest (2 million hectares)
– Start: environmentalists + lumber companies get together
– 2001: private foundations + BC premier’s office -> 1st nat.
– 2002/3: determination of ecological value and economic pot.
– 2007 Outcomes:
• $120 M across 2 funds: $30 M fed, $30 M prov., $60 M private
• Provincial government actions
– New ‘ecosystem based’ land management regime (3x PEI)
– New park designation for ecological protection
• Collaborations
– Collective land-use agreement among prov. gov’t and first nations
– North coast first nations collaborating (e.g. joint marketing and
distribution of fish)
– Shared governance between private, first nations, government
CAUSEWAY: a national collaboration

10. The social finance ‘diamond craft’
• The potential value of any social finance
undertaking is strongly influenced by:
• Understanding (clarity)
– Depth of understanding
• What’s the issue?
• What’s involved in addressing it?
• Value (carat)
– Amount of capital involved in the issue?
• Assets, income, expenditures, etc. ?
• Engagement (shape and facets)
– Comprehensiveness of input into discovery and design
• Participation (cut)
– Variety of participants and perspectives in envisioned
solution CAUSEWAY: a national collaboration

11. CAUSEWAY a national collaboration
A national collaboration
working on new pathways
for financial investment
in public benefit.
CAUSEWAY: a national collaboration

12. CAUSEWAY a national collaboration
CONTACT
Tim Draimin Michael Lewkowitz
Chair, Steering Committee Start-up Coordinator
Phone: Phone:
(604) 647-6611 x244 (416) 607-5643
(416) 481-8652 (778) 329-0021
Email: Email:
tim@tidescanada.org michael@igniter.com
CAUSEWAY: a national collaboration

13. “Money plays the largest part in
determining the course of history.quot;
- Karl Marx
quot;Only when the last tree has died
and the last river been poisoned
and the last fish been caught will
we realize we cannot eat money.quot;
- Cree proverb
CAUSEWAY: a national collaboration

14. ‘Finance’ is about:
managing risk… for financial return
• From wikipedia:
– The study of money and other assets;
– The management and control of those assets;
– Profiling and managing project risks; or
– The science of managing money.
CAUSEWAY: a national collaboration

15. Risk management =
beware of uncharted waters.
Motivates selecting the known, familiar, direct
•Legal structure
•For-profit
•Use of proceeds
•Not-for-profit
•Operations
•Charity
•Investment structure
•Assets
•Grant
•Projects
•Loan
•Equity
Creates rigid and specific investment terms
CAUSEWAY: a national collaboration

16. Which invites a game…
of financial ‘Twister’
Table 1.5 - Project Capital Funding Summary
Source of Funding Form of Funding Amount
Homegrown Solutions Grant $ 18,800.00
Pacific Coast Savings credit Union First mortgage $ 2,000,000.00
Line of credit $ 300,000.00
Real Estate Foundation of BC Second mortgage & grant $ 318,000.00
City of Victoria Grant $ 20,000.00
Vancouver Foundation Grant $ 50,000.00
VanCity Community Foundation Third mortgage & grant $ 200,000.00
Victoria Cool Aid Society Equity $ 285,000.00
Account interest $ 8,893.66
Total funding $ 3,200,693.66
Total capital costs $ 3,195,787.30
Surplus $ 4,906.36
CAUSEWAY: a national collaboration

17. Proposed Vancouver Homelessness LP
from Vancouver Homelessness Funding Model Report
CAUSEWAY: a national collaboration

18. “Money is only a tool. It will
take you wherever you wish,
but it will not replace you as
the driver.”
- Ayn Rand
CAUSEWAY: a national collaboration

19. You can do a lot with
diplomacy, but with diplomacy
backed up by force you can
get a lot more done.
- Kofi Annan
CAUSEWAY: a national collaboration

20. On the precipice of unprecedented
challenges + systemic failure
Growing social and environmental
pressures
+
government and market failure
=
the conditions for innovation.
CAUSEWAY: a national collaboration

21. The U.S. and UK have responded
• US - New Market Tax Credits
– $37 B in economic infusion
– Introduced in 2001 to provide tax
credits to investors in
Community Development Entities
– 88% of investors would not have
made the investment in low-
income communities without it
• UK - Community Interest
Companies (CICs) Source: US Dept. of the Treasury, Insights,
New Markets Tax Credits
– 1164 CICs registered
– Hybrid legal structure
• Capped dividend payable to shareholders
• Asset lock retains assets within the company or other CICs
CAUSEWAY: a national collaboration

22. encouraging an entire marketplace
U.S.
Source: GoodCaptial Story Index Presentation and Jay Coen Gilbert, Don Shaffer and John Katovich
CAUSEWAY: a national collaboration

23. encouraging an entire marketplace
UK
CAUSEWAY: a national collaboration

24. And in certain areas…
Source: GoodCapital and Mark Beam?
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25. … structured financial products.
20 deals | 21 orgs | $6.5B
(affordable housing, microfinance, global ngo’s)
CAUSEWAY: a national collaboration

26. The Canadian diamond field
Acceptable Purpose by Structure
• Limiting regulatory framework Organizational Types
– Income Tax Act and charity law For Profit Not-for-Profit Charity
significantly constrain flow of Relieve Poverty
Wealth Any
capital Maximization Purpose Advance Religion
Except
Advance Education
• Strong non-profit sector Profit
Community Benefit
Acceptable Purpose
Adapted from: W. L. Hunter
– $120 B annual expenditures
– >7% of Canada’s GDP
– Above average growth
– 1.5 M workers + 0.5 M
volunteers
– 2nd largest in world per capita
• Internationally significant
– Resources
• Water, energy, forests
– Examples
• Great Bear Rainforest
CAUSEWAY: a national collaboration

27. Preparing for a diamond harvest
• Changing the conversation
• Developing the craft
– Financial structuring research,
demonstration, and
dissemination
• Enabling the marketplace
– Policy (tax incentives and
supporting hybridization)
– Opening systems to
restructuring
CAUSEWAY: a national collaboration