Social Impact Bonds by CASEi3

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CASEi3 Social Impact Bond Research
Prepared for: The Safety Lab & Dalberg Global Development Advisors
Prepared by: The Center for the Advancement of Social Entrepreneurship’s
Impact Investing Initiative at Duke University’s Fuqua School of Business
May 2014

+
Agenda
 Problem
 Approach
 5 Goals of SIBs
 Stakeholder Overview/Motivation
 Future of SIBs
 Implications for The Safety Lab

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Problem
 Determine what is “real” in the Social Impact Bond
(SIB) instrument and its impact
 For SIBs that are real, identify how they are
structured

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Approach
Research
 Performed in-depth research on six active SIBs
 Conducted general landscape research
Interviews
 Conducted interviews with 24 stakeholders (see
Appendix for detailed listing)

+ “Real” SIBs intend to meet 5 main goals
1. The SIB will have a positive impact on the beneficiaries and
effective metrics for measuring outcomes
2. Decisions to invest in social impact bonds are motivated by
interest in return on investment (ROI)
3. The SIB will provide future cost savings to the payer who is
typically the government
4. SIBs will allow governments to outsource the financial risk of
funding social interventions
5. The SIB will allow different proven programs to scale up

+ Goal 1: The SIB will have a positive impact on the
beneficiaries and effective metrics for measuring
outcomes
Positive impact
Funding from the SIB will ultimately leave a positive impact on the
beneficiaries by mitigating or eliminating the social problem.
With measurable outcomes
The effect on the beneficiaries can be monitored and evaluated on a
quantifiable basis, with logical interim evaluations.
That pay for success
Repayment will only occur if and when the positive impact reaches the
determined threshold, indicating the program’s success.

+ SIBs are increasingly concentrating on outcomes
rather than outputs, but experts are still trying to
determine which topics are appropriate
Pilot
Programs
Although it is generally suggested that these criteria be avoided, some
SIBs involve implementers of remediation services.
 SIBs typically will focus on a service that aids in the
prevention of a social ill
 SIBs that have launched thus far have avoided the following
criteria:
Remedial
Programs
Exploration
& Research

+ Social impact bonds focused on the effective
measurement of outcomes have faced challenges in
measuring indirect impact
Social Problem Easy to Measure
Direct Impact
Difficult to Measure
Indirect Impact
Recidivism Recidivism bed days Impact on beneficiary
families
Homelessness Count of rough
sleepers
Impact on lower crime
rate
Early childhood
remediation
Predictive evaluation
tests
Impact on future
employment rate
Regardless of the outcomes being measured, it is important that the pay-
for-success metrics reward small achievements with small payments,
rather than just large successes.

+ Goal 2: Decisions to invest in social impact bonds are
motivated by interest in ROI
Capital Protection
In the SIB model, investors shoulder the financial risk of
the SIB and lose their principal if the outcome is not
achieved.
In practice, many SIBs include a guarantor (e.g., grant or
VC firm) which results in the investor not losing their
entire principal if the outcome is not achieved.
Limited Returns
Most SIBs place a ceiling on the level of return an
investor can earn.
Risk Assessment
The risk of a SIB for an investor is difficult to quantify.
Without a guarantor, the pool of investors willing to take
on the risk is limited.
Rather than simply
financial return, SIB
investors are
motivated by:
• Being part of an
innovative
solution
• Having a social
impact
• Gaining positive
publicity

+ Social impact bonds may represent a shift in the form
of investments, rather than new investments in the
sector
Charities
Grants
Social Impact
Bonds
Impact Investors
Social
Entrepreneurs
Social Investors: Investment Form:
Funding for SIBs may be reallocations from other social sector investments
rather than new investments from traditional investors.
Potential obstacles to
attracting traditional
investors:
• Rate of return
• Cap on return

+ Goal 3: The SIB will provide cost savings to the payer
who is typically the government
Monetizable issue
The issue focus of the SIB will be one for which the payer already
incurs a cost, either through running a similar program or through
absorbing the cost of negative impact.
Outsourcing efficiency
If the payer already runs a program similar to the implementer’s,
the SIB is meant to pay for a more efficient outcome.
Avoiding costs from negative impact
Cost savings to the payer may come from preventing negative
impact and thus avoiding future costs born by the government.

+ Payer’s incentive for the SIB may lie more in transfer
of risk, and the ability to stretch the social budget,
than in cost savings
 The implementer may not achieve economic efficiencies, in
most cases this is not the main motivation
 Payers use this new tool to stretch their budget using the
private sector to fund preventative programs
 Payer’s motivation derived from transferring the risk of running
its own program to the implementer by only paying for
successful outcomes
Multiple motivations for payer exist beyond cost savings, especially
transference of risk and accountability.

+ The payer’s motivation to participate depends heavily
on how the monetization is framed
 Cost savings are often reported
as the fully absorbed cost for
each beneficiary served
(variable + fixed cost allocation)
which does not appropriately
report the economic realities of
the program
 Immediate short term savings
may include economic
efficiencies in how the program
is run
 Long term savings will often
encompass avoided costs that
the payer would have absorbed
had a negative impact occurred
Fixed Costs vs. Variable Costs Short Term vs. Long Term
SIBs are often framed such that they are easily understood by
government constituents, and promise significant savings, however this
framing may not capture the real monetizable impact.

+ Goal 4: SIBs will allow governments to outsource the
financial risk of funding social interventions
 SIBs typically fund “innovative, proven interventions”
 Innovative: Implementers are conducting a program using a model that the
government does not already follow which has been implemented at a small
scale
 Proven: Implementers have a proven history of success
 Implementers may not have access to public funds without SIBs
transferring risk to private investors
 Great fundraising opportunity once the model has been proven at a higher
scale with public funds
 Risk transference is real, governments won’t cover investors’ losses in
the long term
 Private investors are the true bearer of risk in the SIB market

+ A bigger and more mature market is needed to take
full advantage of the risk transfer benefits
SIBs have been investing in
“innovative proven interventions”
Implementers wouldn’t have had
access to public funds without SIBs
transferring the risk to private
investors
There has been considerable
philanthropic/government
guarantees to create the SIB
market
No evidence yet that governments
won’t cover investors’ losses in the
long term
Preliminary Insights Trends
 Latest SIBs in UK have no
government guarantee
 Small scale interventions might be
used to test effectiveness of
complex social problems
 A diversified portfolio of SIBs might
create room for riskier social
interventions
 Proven interventions might sell new
SIBs

+ Goal 5: The SIB will allow different proven programs to
scale up
Proven Model
The organization’s model for a specific intervention is already working
and the outcomes can be measured
Scalable
The size of the intervention will increase with the SIB, and has the
potential for an even larger increase after successful completion of the
SIB
Continuous
After the SIB is completed, the program operations should continue with
other sources of funding or as a part of a government program
In order to receive SIB funding, intervention programs need to be:

+
SIB
?
Interventions need to scale by themselves before
being eligible for a SIB
Seed
grants
Institutional
grants
Impact
Investors
Governments
• SIBs allow access
to capital to proven
organizations
• SIBs speed up the
scaling process of a
program
• SIBs facilitate
continuity of a
specific program
The SIB allows the NGO to scale rapidly and, if the
SIB is successful, the NGO’s opportunities to continue
scaling are promising

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Stakeholder
Overview/Motivation

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SIB Stakeholder Overview
Other
Stakeholders
Investor Implementer
Intermediary
Payer Evaluator

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SIB Stakeholders: Payer
Definition
Usually a government or
governmental agency that repays
investors once results have been
achieved. Has a vested interest in
solving the social problem
Payer Role
 Efficiently allocate resources to
solve social problems
 Evaluate different programs and
scale the successful ones
 Repay principal and return to
investors if successful
 Could partner with a guarantor in
order to cover the bond’s
principal
Other
Stakeholders
Investor Implementers
Intermediary
Payer Evaluator
SIB Payer
Newpin SBB Treasury Department and FACS, New
South Wales Government
Peterborough SIB Minister of Justice and The Big Lottery
Fund
Riker’s Island SIB New York City Government
Rough Sleeper SIB Department of Communities and Local
Government
Teens & Toddlers SIB Department of Work and Pension
Utah High Quality
Preschool SIB
Salt Lake County Council

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Payer Motivation
 Insight #1: SIBs are used as a tool to
stretch the social program budgets
 SIBs are bringing more money into the sector
during a time of deep budget cuts
 Allows government to set aside funds for
prevention services
 Insight #2: Interested in transferring the risk
to the private sector
 Test different models and select the ones with
results while incurring less risk
 Insight #3: Focused on outcomes, metrics
and accountability
 Future social savings are anticipated to cover
the bond costs
 Intention is to scale SIBs if savings are
achieved
Other Considerations
 Governments want
proven interventions as
opposed to innovative
interventions
 Metrics are often
vaguely defined to get
approval from different
government
stakeholders

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SIB Stakeholders: Implementer
Definition
An organization that executes the
agreed upon intervention and
delivers services to constituents in
order to realize target results
Implementer Role
 Identify and recruit participants
 Launch the intervention
 Execute ongoing program
operations
 May collect data on participants
throughout the program
Other
Stakeholders
Intermediary
Payer Evaluator
SIB Implementer
Newpin SBB UnitingCare Burnside
Peterborough SIB
One Service (St. Giles, YMCA,
Ormiston, others)
Riker’s Island SIB
Osborne Association, Friends
of Island Academy
Rough Sleeper SIB St. Mungos, Thames Reach
Teens & Toddlers SIB Teens & Toddlers
Utah High Quality
Preschool SIB
Utah High Quality Preschool
Program

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Implementer Motivation
 Insight #1: Increased access to funding to expand scope
of operations
 Grow operations to provide cost savings through economies
of scale
 Diversify funding to shield the organization from risk
 Insight #2: Improve well-being of target population
 Provide services and benefits for a larger target population
 Focus on program outcomes with room for innovation in
delivery
 Insight #3: Deliver proven model of success as opposed
to innovative model
 Access to historic data or control group data to illustrate past
success to gain credibility
 Data measurement encourages a structure that focuses on
impact
 SIB contracts may limit
flexibility in program
execution
 Implementer should have
sole ownership of, and
flexibility within, the
funding budget once
agreed upon
 Contract contingency
clauses should be
included

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SIB Stakeholders: Investor
Definition
An individual or organization that
provides capital with the expectation
of future financial returns due to
successful outcomes
Investor Role
 Provide upfront capital to
intermediary to pay for programs
 Receives capital plus a return
only if program meets
predetermined performance
targets
Other
Stakeholders
Intermediary
Payer Evaluator
SIB Primary Investor
Newpin SBB SVA Trust
Peterborough SIB Various charities
Riker’s Island SIB Goldman Sachs
Rough Sleeper SIB Big Issue Invest
Teens & Toddlers SIB Bridges Ventures
Utah High Quality
Preschool SIB
Goldman Sachs

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Investor Motivation
 Insight #1: Social motivation
 Interest in innovative social financing instrument
 Principle and return can be used to invest in future
SIBs if outcomes are achieved
 Insight #2: Financial motivation
 Many SIBs include a guarantor, which limits the risk
for the investor
 SIB investments have little correlation with the
market and therefore can diversify investor portfolios
 Insight #3: Regulatory incentives can motivate
investors
 Community Reinvestment Act (CRA) in the USA
 Social Investment Tax Relief in the UK
 Investors gain positive
publicity for investment
in social cause
 Smaller thresholds for
outcome payments
instills confidence in
investor
 Potential for creation of
secondary market for
SIBs in the future

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SIB Stakeholders: Intermediary
Definition
An organization that acts as a link
between stakeholders in order to
bring about the arrangement and
execution of the SIB
Intermediary Role
 Structure financial & legal terms
 Select other stakeholders
 Serve as primary liaison among
all partners
 Monitor SIB’s progress
Other
Stakeholders
Intermediary
Payer Evaluator
SIB Intermediary
Newpin SBB Social Ventures Australia
Peterborough SIB Social Finance UK
Riker’s Island SIB MDRC
Rough Sleeper SIB Social Finance UK
Teens & Toddlers SIB Social Finance UK
Utah High Quality
Preschool SIB
United Way of
Salt Lake City

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Intermediary Motivation
 Insight #1: Make deals happen
 Test market appetite for the SIB needed to
gather investors
 Organize multiple stakeholders
 Contracts are complex, plenty of legal
issues
 Other stakeholders see intermediary’s role
as absolutely necessary
 Insight #2: Shape the political
environment
 Rolling out legislation in State of Utah
 Qualifying for CRA in USA
 Social Investment Tax Relief in UK
• There may be need for
philanthropic investment to
fund intermediaries
• Government organizations
often contribute to the role
– Could do multiple deals
around the same team
– Can standardize SIB’s
terms

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Future of Social Impact Bonds (1/2)
 Stakeholders are ultimately uncertain as to the future of SIBs;
even in case of success, the political landscape may change.
 Many stakeholders believe that either:
 The SIB will be repeated, or
 The government will directly fund the implementer without a SIB so as
to avoid paying a premium to investors,
 But, in this case there is concern that even in a successful SIB, the
government may cut funding, thus the first option (repeat SIB) seems
more likely,
 Also, tension between the government and implementer is anticipated
in trimming government spending vs. staying mission-focused
 In case of SIB failure: some SIBs are project-based and simply
end; others will return to normal funding sources at smaller scale
but may suffer reputational risks

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Future of Social Impact Bonds (2/2)
 Possibility that once SIB instrument is better established (and
thus less risky), it may be used to fund more innovative
(unproven) solutions
 Possibility of establishing a secondary market for SIBs in the
long term (+5-10 years)
 Possibility of a shift in the intermediary role, may be played by
the government / payer, or implementer
 Possibility of a shift in investor type towards more a traditionally
motivated financial investor, for example pension funds
While the future of SIBs is largely unknown, many interviewees agree that SIBs will likely be repeated
or funded directly by the government.

+
Implications for The Safety Lab

+
Implications for The Safety Lab (1/2)
 Most logical stakeholder role: Intermediary
 Consider costs associated with serving as an intermediary,
necessity of philanthropic funding (e.g. Non-profit Finance Fund) or
sharing in financial upside of SIB (e.g. Social Finance) – in latter
case still need upfront capital since payout is delayed.
 Concern over government reliability to pay, especially in
developing countries – appropriation risk
 Greater media coverage and investor presence can help pressure
government contract fulfillment
 Possibility to have non-government payer
 Few examples of this so far; DFID is exploring commitment; future
payers may include employers, business associations, community
associations

+
Implications for The Safety Lab (2/2)
 Implementer needs to have proven model with evidence base
and clear metrics for outcomes
 Binary metrics help avoid government shirking and eases investor
understanding
 Prevention and early intervention focus is not mandatory, but is
popular for government participation
 SIB is essentially a contract between partners,
 Understand and balance each stakeholders’ motivations
 Also best practice to directly address and plan for contingencies in
contract

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Appendix A: Interview Quotes

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I don’t think of SIBs as a tool to innovate social
interventions. They are too costly, complicated and risky. I
think a deep enough market with riskier SIBs being part of
a portfolio strategy is way down the road.
-- Steve Goldberg, Independent Social Investment Advisor
& Founder of Caffeinated Capital

+
[Social Benefit Bonds will] tend to be providers of finance to
established operators. it would be hard, but not impossible,
for instance, for impact investors to get comfortable with
the ability of a service provider party to [an SBB] if it did not
have an operating history in the field or, at a minimum, a
strong brand that was, in effect, a proxy for that operating
history. As a result, [SBBs] will normally be associated with
established operators that have established, observable
ways of operating and a measurable track record, or with
entities that can otherwise assure investors of their
competence.
-- Paul Bide, Independent Investor, Newpin SBB, Australia

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We are a small organization, and we were looking for
money. After several government cuts, this seemed an
attractive way to get that money. We do not have
any special preference for this financial instrument. If there
is money, we are happy to take it and use it to further our
charitable aims.
Prior to this SIB, we were funded solely by local and central
governments and by some charitable funds. The financial
impact of this bond was massive for our organization,
we certainly could not have done the project without
these funds.
-- Paul Hopkins, Director of Operations and Finance, Teens
& Toddlers, UK

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We are constantly asked to show models that are
innovative and have proven their efficacy – which can
seem quite contradictory! Our model was already proven
and no one else does something like this, so we
are innovative in that sense.
-- Paul Hopkins, Director of Operations and Finance, Teens
& Toddlers, UK

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The big thing we’re seeing right now with foundations is
trying to get nonprofits to a place where they can engage in
these. We have spent the past seven to eight years
building a performance based management system,
tracking data, running the model, and running three theory
of change processes. If an organization hasn’t done at
least some of that work, this is a tough place to walk into.
You need to be a reasonably high-functioning nonprofit to
engage in these contracts successfully with real attention
to outcomes and performance management. I think this is
where a lot of nonprofits will run into trouble.
-- Lili Elkins, Chief Strategy and Development Officer,
Roca

+
Someone was telling me that they saw the budget for
Peterborough a long time ago and there was a part of the budget
they didn't understand. And they asked 'what's that?' and one of
the directors said they had deliberately allocated funds for
innovation so that they could respond directly to unmet
need. That's something they call the "innovation fund"
in Peterborough... They're these funds that pay for the extra
stuff...It's a budget line that is ring-fenced for innovation and
previously unidentified need - it's a contingency. So they budgeted
a packet of extra spending before they knew exactly what they'd
spend it on…
Government shouldn't set the budget for services...[they] should
just pay for the outcome. Any more involvement and you're
reducing the benefit of what it's all about.
-- Emma Tomkinson, Social Impact Analyst, Australia

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Some say that it is inappropriate that impact investors can earn
a commercial return from their investments in social programs. I
think this way of thinking is unfortunate as any asset class needs
to show returns to its investors to survive. If impact investors did
not need a commercial return to invest they would be called
philanthropic investments. The benefit of this new asset class [of
SBBs] is that it is mobilising a new pool of social capital whose
return to those providing it is a blended social and commercial
return. If the first wave [of SBBs] fail and investors do not make a
return, or lose some or all of their principal, that's not a good thing
as there’ll be fewer of them around next time, which means less
chance that a social program will receive the necessary funds to
provide its service. Over time, as in any market, I think the returns
to investors will reflect the risks and rewards experience. The
market should direct funds to efficient and successful operators at
the lowest possible cost. In the early stages of a new asset class,
perceived risks of failure are higher and expected returns will
reflect that, all other things equal, to encourage investment. It is
also worth noting that a government will not agree to the terms of
[an SBB] unless it is anticipating that there’ll be a cost saving to
the public sector. The SBB model shares cost savings of the
successful delivery of social programs between impact investors
and the public sector. Investors receiving a return means good
things have happened.
-- Paul Bide, Independent Investor, Newpin SBB, Australia

+
Until investors can price the risk of social impact bonds,
there will be a limited appetite for the instrument [from
traditional investors].
-- Center for American Progress

+
[A guarantor] mitigates the risk, but nobody makes a deal
because there’s a guarantee.
-- Andrea Phillips, VP Urban Investment Group,
Goldman Sachs

+
Generally, intermediaries will be needed for investor reach
and they are also cheerleaders for the whole sector.
There’s also a need for a deal negotiator with the ability to
work on structured deals of this nature. Typically, those
skills don’t exist in the traditional for purpose or
government sectors. Also, the devil is in the details in these
types of arrangements and a proper balance of the
interests of investors, operators and government will be
required. Generally, that balance is provided by an
intermediary and not the principals in the transaction.
-- Specialist familiar with intermediary organizations

+
Conceptually, the intention is that you have investors involved
upfront who, in a “traditional” social impact bond, bear the risk of
demonstrating the efficacy of preventative interventions. If the
program’s contractually agreed upon outcomes are achieved, the
government serving as a contingent back-end payor repays the
investor and, again conceptually, seeing the intervention as a
societally and financially desirable activity, continues to fund the
project directly because if they know the program is effective, why
.. would continue to pay investors interest on financing
that program upfront…
The reality is there are a lot of programs that have demonstrated
effectiveness in some way, shape, or form that don’t continue to
receive government funding. Preventative interventions and
programs tend to be funded out of governments’ discretionary
budgets and are often the first thing that is cut when budgets are
tight.... There is not necessarily something inherent in a pay-for-
success contract that necessitates that [continued
government payment is] what happens next... even if there were,
many people would question how steadfast that is - is there really
a way to hold governments to that.
-- Jessica LaBarbera, Director of Strategic Innovation, Nonprofit
Finance Fund

+
The risk is that the government might ask for more
compliance over time which would add to the costs of
program delivery and could detract from service levels
and/or returns to investors. It is up to both the intermediary
and the service providers to draw a line in the sand on this
potential in order to protect social outcomes and
commercial returns by ensuring the government sector’s
compliance costs are fixed at the beginning of the
program.
-- Specialist familiar with Social Impact Bond structuring
issues

+
If the first round is successful, a SIB is definitely
repeatable. It can be continually repeated until it gets to
the point where the government will take it over.

+
It is possible that in the future the service providers could
serve as the intermediaries. This is already happening to
some degree in [the Salt Lake City SIB].

+
In political environments that have less established cultures
of good governance, investors more intensely scrutinize
the mechanisms in place to ensure that governments will
make performance payments if/when they come due.
Challenges such as unease over government
solvency, rapidly leadership turnover, and political
corruption increase the perceived risks born by
investors. Mitigating this payment risk (also called
appropriations risk) needs to be addressed for Pay for
Success contracting to successfully spread from the U.S.,
U.K., and Australia to emerging markets such as South
Africa.
-- Scott Kleiman, Government Innovation Fellow, Harvard
Kennedy School’s SIB Lab

+
Some governments have a poor credit history and enter
into contracts they do not pay out on. Perhaps for these
governments, if we had greater media and
investor presence, that would pressure the government into
paying up on their contracts…

+
I always say the Social Impact Bond is an agreement
between parties and you've got it when you've got an
agreement. You don't have it when you've got a financial
model - you could have the best financial model in the
world, that doesn't mean that everyone's going to agree to
it... It's about figuring out what those parties need,
providing the information they need, negotiating.

+
SIBs are the tip of the spear, a foot in the door for more
creative instrument[s].
-- Kippy Joseph, Associate Director, The Rockefeller
Foundation

+
Appendix B: SIB Research
Peterborough, UK
GENERAL INFORMATION
The Peterborough SIB was developed
by Social Finance and the Minister of
Justice, with two goals: reducing
recidivism and testing new social
financing instruments.
The goal of the project is to reduce
recidivism by at least 10 percent.
Different organizations are grouped
under a new NGO, One Service, to
increase the intervention scope. A
commissioner is included to cover the
Bond Principal and the Minister of
Justice will only pay for the return.
Location
Peterborough, Cambridgeshire, UK.
Big Lottery
Fund UK
Commissioner
Different
Charities
Investor
One Service
(St Gilles Trust
YMCA
Ormiston
Trust &
Others)
Implementers
Social Finance
Intermediary
Minister of
Justice
Payer
University of
Leicester
and
QinetiQ
Evaluator
Source: The Minister of Justice, UK

+
Peterborough, UK
TERMS OF CONTRACT
Contract Duration
 September 2010 – August 2016
Key Dates:
September 2010 First SIB is launched for HMP Peterborough
August 2012 First Stage is completed and evaluators start assessing the intervention
June 2013 First evaluation interim results by QinetiQ and Leicester University, the draft
reports says recidivism was reduced by 23%
Anticipated: August 2014 First Payment made after evaluation reports are completed.
Anticipated: August 2016 Second evaluation completed and payment if successful. Interventions ends.
Anticipated: August 2018 Third evaluation completed and payment if successful. SIB ends.
Investment
 Various Charities: £5M in three stages of
24 months each
Source: The Minister of Justice, UK

+
Peterborough, UK
Outcome Payment
If recidivism goals are met:
 The Big Lottery Fund will pay £1.7M after each stage and the Minister of Justice will pay
a 13% return on top of that if a 10% reduction has been met.
If recidivism goals are not met:
 A new assessment at the end of the three stages will be made and if a 7.5% overall
reduction has been achieved, the Big Lottery Fund will pay £5M and the Minister of
Justice will pay the promised 13% return
1Source: The Minister of Justice, UK
“The Peterborough SIB is too small to deliver substantial ‘cashable’
savings (monetized benefits). The ability of the SIB model to lead to
identifiable savings for government is yet to be tested, if the SIB model
is implemented on a larger scale.”1

+
Appendix C: SIB Research
Teens and Toddlers SIB
GENERAL INFORMATION
• The Teens & Toddlers program aims to support
more than 1150 young people aged 14 to 16
who are at risk of becoming NEET over a three
and a half year period.
• The first stage of the intervention is an 18 weeks
program in which teenagers are paired as a
mentor and role model to a child in a nursery,
developing a series of soft skills that will prevent
them from becoming NEET.
• On the second stage of the program, after the
initial 18 weeks, teenagers join a trusted
learning community to talk about life and school
goals with the support of a facilitator.
• Additional fund raising as main motivation to
engage in SIB
• Considering using success evidence of the
program to structure new SIBs with local
governments as payers
Location:
Manchester, UK
Bridges
Ventures,
Barrow
Cadbury,
Esmée
Fairbairn, Big
Society
Capital, CAF,
Impetus
Investor
Teens &
Toddlers
Implementers
T&T
Innovation
Special
Purpose
Vehicle
DWP’s
Innovation
Fund
Payer
Social Finance
UK
Performance
Manager
National
Centre for
Social
Research and
Insite
Research and
Consulting
Evaluators

+
Objective of the Innovation Fund
Pilot initiative aimed at testing new
social investments and delivery
models to support disadvantaged
young people. It will pay for
outcomes directly related to
increasing future employment
prospects, preventing teenagers to
become NEETs1
Teens & Toddlers is 1 of 10 SIBs
commissioned via open
competition by the DWP’s
Innovation Fund
Common Structure of Innovation Fund’s
SIBs
• Maximum outcome payments: £ 28.4m
• Estimated total private investment: £10m
• SIBs were commissioned over two rounds
• First round: 6 Social Impact Bonds
• Launched in summer 2011,
projects started in April 2012
• £8,200 cap per participant
• Second round: 4 Social Impact
Bonds, including Teens & Toddlers
• Launched in spring 2012,
projects started in November
2012
• £11,700 cap per participant
• SIBs are 100% pay by results
• Partnerships bid a price per outcome
• There is no real cap on return
• Payments are made on a monthly basis
• Outcomes are considered up to 26 weeks
after completion of the program
1: Not in Education, Employment or Training. 2: £3,500 after 13 weeks, additional £2,000 after 26 weeks

+
1: Not in Education, Employment or Training. 2: £3,500 after 13 weeks, additional £2,000 after 26 weeks
Outcome
Maximum
payment
Improve attitude to school* £700
Improved attendance at school* £1,400
Improved behavior at school * £1,300
QCF Entry level qualification* £900
Level One NQF* £1,100
Level 2 NQF* £3,300
Level 3 NQF £5,100
Entry into first employment £5,5002
Round 2 proxy outcomes and
maximum payments
Outcome and Payments
• Bidders pick a mix from this list and propose expected payments per outcome, up to the
maximum payment set by the DWP
• Teens & Toddlers picked outcomes with *

+
TERMS OF CONTRACT
Contract Duration
 Contract: November 2012 – May 2016
Key Dates
Investment
• Bridges Ventures will invest ~50% of the
total SIB of the £800k- £1.2 million to fund
the program
• Initial expectations of 8-14% ROI.
• First payments aligned with expectations
• Would have been comfortable investing
100% of total capital
• Willing to further invest in T&T
• Payment cap of £3.25 million, too high to
be considered a cap on returns
October 2012 T&T Starts delivering the program
May 2016 End of Contract
Nov 2016 Outcomes paid up to 6 months after
the contract
Every month Payments are made on a monthly
basis

+
Appendix D: SIB Research
London Rough Sleeping SIB
GENERAL INFORMATION
The London Rough Sleeping Social Impact
Bond was developed by the Department for
Communities and Local Government (DCLG)
and the Greater London Authority (GLA) to try
to improve outcomes for a group of 831
persistent rough sleepers (defined as
individuals who have been recorded sleeping
on the street and/or have stayed in a London
rough sleeping hostel in the last three months,
and who have been recorded sleeping on the
street at least six times over the last two years)
in London. The intention of the SIB is to focus
on these individuals over a three year period to
try to improve their outcomes and tackle the
fundamental issues which often prevent them
benefiting from existing service provision.
Location:
Greater London, UK
Big Issue
Invest, CAF
Venturesome,
Orp
Foundation
Investors
St. Mungo’s &
Thames
Reach
ImplementersSocial Finance
Intermediary
Department for
Communities
and Local
Government
Payer
Greater
London
Authority
Evaluator

+
TERMS OF CONTRACT
Contract Duration
 November 2012 – October 2015
Key Dates:
August 2011 GLA/DCLG commissioned feasibility study from Social Finance and Young
Foundation
February 2012 DCLG funding agreed upon, subject to minimum outcomes being achieved
September 2012 Contracts awarded
November 2012 Service commenced
February 2013 and quarterly
thereafter
Outcome payments
Anticipated: October 2015 Service ends
Anticipated: October 2016 End of period in which sustainment outcomes can be claimed
Investment
 DCLG provides GLA with up to £5M
depending on outcomes achieved and
costs incurred

+
Outcome and Cost Savings
The five outcomes are:
 Reduction in the number of individuals with bedded down street contact (found sleeping
on the street by homelessness outreach teams) each quarter;
 Confirmed sustainment of tenancy in a non-hostel setting;
 Confirmed reconnection to country in which individual enjoys local connections;
 Sustainment of volunteering, part-time or full-time employment; and
 Decrease in the average number of accident and emergency (A&E) episodes per person
per year
Type of Cost
Cost Estimates Used
in Model ($)
Cost Estimates Include
Rough sleeping costs £1,664 Outreach services
Accommodation costs £3,818 Temporary accommodation and tenancy breakdowns
Criminal justice costs £10,693
Reconviction costs and
police time
Employment costs £2,600
Job seeker's allowance and
employment support allowance
Health costs £1,890 Unplanned hospital usage (A&E and ambulance)
Estimated average cost per person £20,000 ---

+
Appendix E: SIB Research
Utah High Quality Preschool Program
GENERAL INFORMATION
The Utah High Quality Preschool Program
provides targeted curriculum to improve
academic performance for at-risk 3 and 4 year
olds. Students will be identified based on their
scores in a standardized test. Based on these
test results, children scoring outside of a
predefined range will enter the Utah High
Quality Preschool Program.
The pilot includes 600 students and will follow
them over the course of 14 - 15 years, or until
they finish high school. Returns to investors will
be based on cost avoidance of incorrectly
identifying children for special education
programs, estimated at $26,000 per child.
Assessment of results will be made on an
annual basis and the first payment will be
triggered at the start of 3rd grade.
Location
State of Utah
Goldman
Sachs, Urban
Investment
Group
Investor
The Utah High
Quality
Preschool
Program,
Granite School
District
Implementer
Untied Way of
Salt Lake City
Intermediary
Salt Lake City
Council
Payer
Utah State
University
Evaluator
JB Pritzker
Investor

+
TERMS OF CONTRACT
Contract Duration
 Contract: Follows student from start of
program to the end of high school (2013 –
2028)
Key Dates:
September 2005 Granite School District was recipient of US Department of Education Early
Reading First Grants and piloted the program with this funding
2007 Initial data indicating the success of the program available
2010 United Way of Salt Lake City committed to fund the “proof of concept”
August 2013 Details of broader scale SIB finalized with investors
September 2013 Programs launched at the start of the 2013-2014 school year
March 2014 The State of Utah passed legislation to roll out SIB funding state-wide
(Anticipated) 2018 - 2019 First payment is planned to coincide with the 3rd grade
(Anticipated) 2027 - 2028 Final payments disbursed
Investment
 $7M committed from Goldman Sachs
($4.6M) and JB Pritzker ($2.4M)

+
Outcome Payment
 Years 1-8: Payments of 95% of annual cost avoided per child ($2,470) for kindergarten
through 6th grade
 Years 9–15: Payments of 40% of annual costs avoided per child ($1,040) after 6th grade
 Plus 5% return per annum dependent on outcomes
 Approximately 1 payment is needed per child over the life of the SIB for the investor to
recoup the investment plus the 5% interest
 An estimated $7 of cost avoidance for taxpayers will be realized for each $1 invested in
the program (e.g. benefits realized through lower future crime, lower drop out rates)
Investment
 $1M of the $7M investment will be used to fund the first 600 students in the program
Years 1 - 8 Years 9 - 15 Total Savings
Cost Savings for Taxpayers
(per year)*
$2,607 per child $2,607 per child $39,105 per child
Payment Triggered for
Investors (per year)*
$2,470 per child $1,040 per child $26,000 per child
*These are costs avoided for each child that was kept out of special education and would have been placed in special education without the intervention
Source: http://www.goldmansachs.com/what-we-do/investing-and-lending/urban-investments/case-studies/impact-bond-slc-multimedia/fact-sheet-pdf.pdf

+
Appendix F: SIB Research
New South Wales’s Newpin SBB
GENERAL INFORMATION
The New Parent and Infant Family
Support Social Benefit Bond (Newpin
SBB) provides intensive support to
parents with the goal of supporting
successful restoration of children
currently in foster care. About 700
families will be referred to the Newpin
program over the 7-year SBB with a
target of successful restoration rate of
65%. Returns to investors will vary based
on the restoration rate achieved with an
early termination of the SBB possible at
the 3-year assessment. Assessment of
counterfactual restoration rates will be
made during the first 3 years of the SBB.
Location
New South Wales, Australia
Trust
composed
primarily of
HNWIs*
Investor
UnitingCare
Burnside’s
Newpin
program
Implementer
Social
Ventures
Australia
(SVA)
Intermediary
NSW Treasury
Department
Payer
NSW
Children’s
Court
Evaluator
* High Net Worth Individuals
Source: The Knowledge Box & Social Ventures Australia
NSW
Department of
Family and
Community
Services
Government
Supporter

+
TERMS OF CONTRACT
Contract Duration
 July 2013 – June 2020
Key Dates:
September 2011 NSW Treasury Department issues Request for Proposal for SBBs
March 2012 UnitingCare Burnside with Department of Family and Community Services
succeeds in RFP
March 2013 SBB contract signed by government and UnitingCare Burnside
July 2013 Start of contract
Anticipated: 2016 – 2017 3-year assessment period
Anticipated: June 2020 End of contract
Anticipated: September 2020 Final payments disbursed
Investment
 AUS$7M: loan note issued in a single
tranche through special purpose trust
managed by SVA
 Capital Protection: losses limited to 25%
of capital during first 4 years, 50%
thereafter

+
Outcome Payment
If restoration rate goals are met:
 10-12% return per annum dependent on outcomes, see illustrative returns below
 Maximum upside capped at 15% return per annum over life of bond
If restoration rate goals are not met:
 3-year assessment period: possibility of early termination of SBB in case of poor
performance after first 3 years, in this case 75% of principal and 5% interest is
guaranteed
 Years 4-7: 50% of principal is guaranteed regardless of restoration rate achieved; 100%
of principal repaid upon maturity if program achieves at least 55% restoration rate –
interest rate varies depending on restoration rate achieved
Illustrative returns
Restoration Rate Interest Rate Principal Payment on Maturity
60% 7.5% 100%
65% (Target) 12.0% 100%
70% 15.0% 100%
Source: Social Ventures Australia

+
Appendix G: SIB Research
New York City’s Rikers Island SIB
GENERAL INFORMATION
The Adolescent Behavioral Learning
Experience (ABLE) is specifically
focused on New York City’s Rikers Island
Jail in collaboration with Mayor
Bloomberg as part of his Young Men’s
Initiative. Juveniles (16- to 18-years-old
at the time of admission) incarcerated at
the jail have a one-year readmission rate
approaching 50 percent. The goal of the
project is to reduce recidivism by at least
10 percent. If the program reaches this
target, Goldman Sachs recoups its
investment; if the target is exceeded, the
City will have saved substantial money
and will pay a return on a capped, sliding
scale.
Location
New York City, New York, USA
Bloomberg
Philanthropies
Guarantor
Goldman
Sachs
Investor
Osborne
Association,
Friends of
Island
Academy
Implementers
MDRC
Intermediary
City of New
York
Payer
Vera Institute
of Justice
Evaluator
Source: “Key Partners in NYC’s Social Impact Bond.” http://www.mdrc.org/key-partners-nycs-social-impact-bond

+
TERMS OF CONTRACT
Contract Duration
 Pilot Program: February – June 2012
 Contract: September 2012 – August 2015
Key Dates:
August 2012 Mayor Bloomberg announces launch of U.S.’s first SIB
January 2013 Program goes full scale with ABLE program
Anticipated: Summer 2015 First evaluation completed by Vera Institute of Justice using a 12 Month
Measurement Period
Anticipated: July 2015 First Payment made
Anticipated: Summer 2016 Second evaluation completed by Vera Institute of Justice using a 24 Month
Measurement Period
Anticipated: July 2017 Second payment made
Investment
 Goldman Sachs: $9.6M loan to MDRC to
run ABLE program
 Bloomberg Philanthropies: $7.2M grant to
guarantee part of Goldman loan and fund
MDRC pilot and intermediary costs

+
Outcome Payment
If recidivism goals are met:
 The Department of Correction pays MDRC $0-$11.7M stepped according to results (see
table below). The payment is used to reimburse Goldman for the initial loan plus an ROI
of -$2.4M to $2.1M.
 MDRC works with Bloomberg Philanthropies to report on the $7.2M for future efforts.
If recidivism goals are not met:
 MDRC uses Bloomberg Philanthropies’ $7.2M to repay Goldman
Reduction in Re-Admission
Rate
Projected Long Term City Net
Savings ($)
City Payment to MDRC
≥20.0% $20,500,000 $11,712,000
≥16.0% $11,700,000 $10,944,000
… … …
≥10.0% (breakeven) $ ≥ 1,000,000 $9,600,000
≥8.5% $ ≥ 1,000,000 $4,800,000
Source: Olson, J., & Phillips, A. “Rikers Island: The First Social Impact Bond in the United States.” http://www.frbsf.org/community-development/files/rikers-island-first-social-impact-bond-
united-states.pdf

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