 Välkomna till den här säsongen på nya funder med nya saker. Jag är Per Grandquist och sistaeditor i Veckans affär, vilket är det största business weekly i Skandinavien. Jag är också en avsökare av en bok kallad CSR i praktiken om hur business kan ha mer håll på att bli mer hållbar. I nästa året ska jag höra om varje av de nya funder gör nya saker och investerar i det här intressanta fjol för att göra mer håll. För de som vill kommentera vad du sa här på steg, eller vill att skära er idéer på den här säsongen, please do so on Twitter and use the hashtag socap, DTF or hashtag imp, which is short for impact investment. IMP, INV. This event is broadcasted live and for those it will be available for later viewing on the SOCAP website. For those of you who are, because we are having some, are you better now? All right. This event is broadcasted live and will be available for later viewing on the SOCAP website. For those of you who wish to connect to people in this room or outside it, please do so on the SOCAP website, SOCAP Connect, or you can check in on Foursquare. You can also join the group SOCAP Squidin on LinkedIn or join our group on Facebook at facebook.com slash social capital markets. So let's kick this session off. When Andrew Cargeny wrote his Gospel of Wealth in 1889, little did he know that his thinking would come to color, the way we look on donations for over a century. He wrote that the life on the justice should be divided into two parts. The first part was about accumulating as much money as possible and the second part of a man's life should be giving it away to short charitable courses. For more than a century, Anne-Joseph has been asking us to donate and in an incredibly more competitive landscape, there's argument that sort of boils down to one thing and that we should give them money because they have low overhead cost that they are effective. And then a lot of companies, there have been a lot of watchdog websites that popped up that enables you to compare different NGOs and their effectiveness to one another. The problem, however, is when if you choose a NGO who donate to based on the way they on the lower overhead cost, it's like choosing an airline to fly on based on who has the lowest maintenance costs or it's like choosing a school based on the least to teachers or checking in to a low cost hospital for your next surgery. It actually says nothing on how effective the organization is in addressing the problem it wants to erase. So even if you're donating to an NGO that might send 95% of the money that you're giving away to distributing condoms in HIV AIDS struck communities, it might be a more effective way to teach people on how the virus is transmitted and how to have safer sex. So we have to choose to spend our money, donate our money based on what gets the maximum effect in addressing the problems in the world we want to erase. Polio and measles are terrible but curable diseases and still dozens of millions of people every year get those diseases. In countries like, for example, Niger, in Africa. And this is a problem that good-hearted philanthropists like Belinda and Bill and Melinda Gates have tried to erase from the face of the earth. And over the past five years, they donated more than 200 million dollars into measles immunization and research worldwide. One of the projects they've been investing in is in Niger Delta. And five years ago, the LA Times ran a story about a 14-year-old boy who's got a polio shot thanks to the Gates Foundation. But what was threatening to his health was not measles or polio, but the fact that the Italian energy giant ENI was burning gas less than a mile away, which was causing him respiratory trouble. So the paradox here is that ENI and one of the big investors in ENI at the time of the article was the Bill and Melinda Gates Foundation. And so this caused a debate on how companies and foundation who want to give money away should invest in order to make the money they have grow even more. This was the first time I heard of impact investment and what seemed to me like a perfect solution to our want to give and get more in turn than just the financial values. As many of you know by hand, my first hand these days, one of the best way of doing addressing problems is by inventing in entrepreneurs that trying to solve problems locally by providing ordinary people like you and me with knowledge in order to become more financially active in order to start businesses and provide them with fair incomes for the products and services they produce. And this is something I've seen firsthand as a board member of the hand in hand and the vice chairman of the Fair Trade Association in Sweden. Business is a great way to address and solve problems in the world that provides sustainable solutions to those problems. In impact investment however, you also have the opportunity to get your money back and that's why it's such a fast growing asset class today. It's not a movement anymore as we heard here these two days but it's about return of investments, it's real and it is really changing the way we address problems. And I watched why we in this session gather a bunch of interesting new funds to tell us how they do it from very different perspectives. And I asked them to come here to share for five, 10 minutes their perspective on their ideas, their experiences of what they've done. And then I will follow up here with a few questions each and one of them to help you get even more into this topic and get more out of them. I will later open up the floor for discussions for the audience as well. Not long ago Oxfam was this asking by donors if there was some way that they could actually invest in project and rather just give money to them. And so it came to be that the Symbotics Group created a fund with them. If you are to take on some of the world's toughest problems you want someone who is calm, methodological, play a lot of attention to details. In other words, someone from Switzerland. You also want to have a deep understanding of human rights, maybe experience from a department of foreign affairs and why not throw in a couple of years at the Swiss private banks for just because you have the opportunity to hand a lot of money. Our first speaker in this session fits that description perfectly. I joined Symbotics at the first employee and worked successively investment manager, regional manager and client relationship manager. Please give a warm hand to Fabio Sofia from Symbotics Group. I think you forgot to say I was the first in charge of the coffee machine also at Symbiotics. So thank you for the introduction. So I represent Symbiotics. I'm in charge of the business development and sales. Symbiotics means the art of living together. So there is a social mission to target the micro, small and medium enterprises in developing countries. Why Geneva? For those that know a bit about microfinance it's true that in Geneva there are several companies that have started. The short story is that we have the United Nations and the private bankers that live in the same city. And it's because of these two actors that at a certain point during the 2000 they joined their effort to create the first commercial fund that is now the Dexia micro credit fund that is managed by Blue Orchard. And the founders of Blue Orchard left to create Symbiotics in 2004. So we've been created in December 2004. We work in more than 45 countries. We've originated a thousand transactions for more than one billion dollars. Initially in 98 the United Nations decided to dedicate to year 2006 for the year of micro credit. So at that time people were talking about micro credit and not microfinance or financial inclusion and not even impact investing which is something that is pretty new. So this concept of micro credit or microfinance is a changing definition. At the beginning people were focused on giving access through a credit to microentrepreneur. Soon we realized that the microentrepreneur needs more than the credit but probably savings, insurance or any type of other financial services. So we start talking about microfinance as a concept including all the different products. Soon later people are starting to talk about financial inclusion because we realize that a microentrepreneur is a bit reductive that there are other segments that can be targeted and are not necessarily micro but it can be very small, small or medium and there there is a great need for financing. So for us it was also important to evolve in that direction and be able to answer all the different needs that either investors or financial institution were asking on the ground. So I just want to clarify one thing in terms of our investment value chain that has not changed over the last seven years. We essentially work with financial intermediaries on the ground. We don't work directly with microentrepreneur or small enterprises because we believe that the local expertise is key and the proximity to the enterprises is also something very important and naturally the fact that average loans go between 1,000 to 3,000 dollars makes that it's impossible for us to support the cost of going directly. So the investment value chain is pretty easy. You have the social investor or mainstream investor investing in a fund and the fund will invest in a financial institution and that's where we provide the services. And the financial institution then will offer the products to their target client that are micro, small or medium enterprises. That means also that there are different strategies. At the beginning we were talking about only macrofinance. It was fixed income essentially. Today you have multi assets. There are funds that are doing mezzanine or mezzanine loans. There are funds that have started to do equity also a few years ago. In terms of strategies you have also different type of strategy in our universe. It can be on the region. It can be on the country of course. It can be on a topic like women, like agribusiness, like food, like housing, jobs. So you can see that what we do and we are known for being I think one of the leading company in microfinance. For us there are a lot of strategies that we can offer to investors. It's not like a simple world but it's a diverse. It can be rather complex. So what about small enterprises? Small enterprises people say there is a missing middle because microfinance has had a large success over the last 10 years. There is a lot of funding going to micro segments but much less to the very small or medium segments. So we know that 99% of the private sector of employees in the private sector 99% are micro, small and medium enterprises. We also know that they need a lot of capital to grow and their average growth in our universe is about 40% so it's quite substantial. So in our world at symbiotics, although we do microfinance out of 600 institution that we have visited, nearly 200 reported a small enterprise portfolio. So what does it mean for us? It means that the business counts between more than 10 employees of 200. So as long as you fit this criteria you are considered as a small enterprise. So it's very important that a microfin institution is also trying to grow with its clientele and not stop once the clientele is reaching the small size or the medium size. So in our universe we've been already exposed to about 12 billion total assets in small enterprises. We've also started screening a bit the market and we realized that there are about 112 specialized small SME banks, so banks that are essentially targeting the small and medium segments. And that amounts to 17 billion dollars. Then we continue a bit our analysis and we realize that there are about 260 specialized local funds that can qualify as local intermediaries. So those local funds with local expertise are pretty new. 60 percent were created after 2006. There is about 15 billion committed and 73 percent, so two three quarter are related to equity investments. So last year Oxfam UK, Oxfam GB, sorry. They decided to go to funds and to launch a fund and to promote an investment fund, something that is pretty new for one of the largest non-profit institutions in the world, active in developing countries. So they had the idea to find a partner to create a joint initiative to launch a fund dedicated to the small segment essentially. And with the idea of being a reference product, a reference in the sense of showing that an NGO, a non-profit NGO can also have the intention to propose a fund to its donor-based clientele and also reference product in the sense of showing that yes we can do something for small enterprises. With this multi strategy of using financial intermediaries, as I said, a microfinance bank that has a portfolio in small SME segments, a specialized bank or a local funds. So that's what we are doing right now. We are launching the fund, I mean officially it has been launched now. We are in the process of raising money. So we are very happy to enlarge a bit our universe of microfinance. So answering the question about the evolution of our industry. So we'll be symbiotics, the fund manager of the fund and Oxfam will be the impact measurement advisor. So this fund will accumulate a lot of financial return and social impact measurement. So it's very important for them that each loan before it gets to the financial analysis, it goes through different criteria that prove that there is an impact, that that can be an impact on the society or on the environment. So that's it if you have any question. Okay, let's start again. What have you learned so far from the Oxfam partnership? That they are very good. No, they are very innovative. We were surprised to see such an institution coming to us and mixing a bit as you can understand they are generally coming to people to trust foundations so they can get the money for free and now they are coming and saying look, it's complementary to what we do. It's not against donation. It's just that you can do good also by investing in something and get in return. And there are different topics we talked about a lot about impact investing. There are different topics in impact investing. One is job creation or micro businesses and those businesses they need money. So access to capital, the best way is to do it in the regular way I would say. But of course for health, for other topics, you need donations. How important do you think that fund will be in sort of getting more people to understand that impact investment exists and it's a real asset class? Symbiotics is pretty well known in the industry of microfinance. But having a joint partnership with Oxfam opens a lot of doors, especially in the UK, which is the largest financial market. So a lot of people now are getting interested in the impact investing space also because there is now an example of a big institution entering the market. So for us it's a great opportunity to go to England and present this topic and present the impact investing, which is up to now mostly related to local impact, a project rather than in developing countries. I'm talking about local impact project. I mean, talked about that missing link. I mean, there's the middle sized companies that are trying to sort of scale even further. Is that something you see also when it comes to social entrepreneurs that we get funding for the little ones, the new ones. But the ones in the middle are having smaller difficulties. Yes, yes, there is this. I mean, I think it's anywhere in the world, not only in developing countries. The micro segments are pretty easy because the story is easy. Everybody imagine the simple story of the cute entrepreneur, self-employed, living with his family and requiring a loan of two hundred dollars. And people like the story. It's simple and they like to invest in there. The reality is that when they start growing, if he grows, because they're not always growing, but if he grows, he starts having employees and it's getting much more complex. And then you have to face other type of needs. It can be not only like working capital, which is typical. Something for microfinals, it can be fixed assets. So you start doing leasing. You start, they start needing medicine in loans or even equity. So it's another world. It's much more complex. So it has been a bit left aside because of this complexity, but the potential, the potential is great in terms of growth, but also in terms of impact. Some people would say that SME segments are more sustainable because they create an environment with employees. And because we don't have to think that all in all everybody, there is an entrepreneur, some people are just not entrepreneur. They survive by being self-employed, but they would rather be employed and get pension, all these things. So we'll have more from you later and we'll join you at the discussion. Thank you so much. A hand for Fabio Sofia. Thank you very much. Our next guest is someone who has a lot to share, given the fact that he's been involved in the impact investment and social enterprise space for last four years. He has experience from work with projects across India and China and Indonesia. Even though it sounds like he's all occupied with solving world problems, he's sometimes still finds time to co-chair the impact investing initiative at Bringham Young University's Ballard Center for Economic Self-Reliance. Something like that, that took sort of 40 seconds. Please welcome our next speaker, Bosil, from UNITUS Impact. Welcome. So just to give you a little bit of background on what we've been doing. United Impact was launched back in February of last year and really was a for-profit spin-out of a group called UNITUS, which worked on microfinance acceleration for the last 10. Really what ended up happening is through the work that we did, not myself individually, but the group UNITUS is an organization. Tremendous work in microfinance, partnered with 28 microfinance institutions globally to help them grow it about twice as fast as the industry. Oh, closer, sorry. In what we started to see was that there was, although microfinance was a very, very important tool to help lift people out of poverty, it wasn't the only thing. And no one ever thought it would be the magic bullet, at least within the organization, to solve poverty. And so the board members of UNITUS 10 years ago said, this is our first project. Let's help grow these things. Let's help show that they're commercially scalable, can attract commercial capital and can reach millions of people just as BRAC and Grameen had done over about a 20 or 30 year period. And when we decided to make the shift out of microfinance, the question was, well, what's next? What's on the horizon? What are the things that need to be funded to really help improve the lives of the poor? And what we started to see that was that those microfinance loans would take someone so far, but then you had the idea a little bit. It's probably what I was saying earlier is that you have something called a forced entrepreneur and then you have an opportunity entrepreneur. And we tend to glamorize the idea of the opportunity entrepreneur who's going out, starting revolutionary companies to change the world. But what we saw was the forced entrepreneur really doesn't have a lot of time. The person who's walking around peddling wears doesn't have a lot of time to really think through a long term strategic value. And most people would rather just have a job, which they can feed their family and have a comfortable existence. And where we went with was, hey, there's these businesses that we're seeing. We're seeing really good opportunity entrepreneurs who are starting larger businesses that are providing better livelihoods for the poor. And when I say livelihoods, I mean just really incomes. And what we started to target was a core group of entrepreneurs who we thought we're starting these livelihood ventures. And really a lot of them were in things such as agriculture, dairy, fishing, salt production, or using micro franchising as a tool to really provide new opportunities to people in rural areas. To give you one example, we funded a company last year called Ruma, which was actually launched in collaboration with Grameen Foundation about four years earlier and was providing the opportunity for women shopkeepers to actually sell through their mobile phones, mobile top up minutes, and they didn't have to carry the inventory costs at that point. They basically sent in an SMS code to the Ruma server, said this person with me wants to buy, I guess you could say 50,000 rupiah of telecom sell minutes, then they'd send them a code. The woman would sell that code to the person who was paying them and basically would enter it in their phone. They would top up their minutes and they had no inventory carrying costs. So at that point, they're able to sell something without having to buy any inventory, don't need a loan. It's really just a distribution point where just due to the, I mean, it'll make a long story short in Indonesia. There's about 13 telecoms. It's a very fragmented market. It's very difficult for anyone telecom to actually get their minutes out to the last mile. And really what we've done since then is we help back a really, really strong entrepreneur and his team. They've added a whole bunch of other products such as prepaid utility payments and are starting to do consumer surveys for large consumer goods companies all based on the mobile phone. And they've built an agent network of about 5,000 agents at the current time and they're growing, looking to grow that to about 60 to 80,000 agents over the next few years. And you know, so that's one company we funded a dairy company in India that's really going down to the first mile as well, boosting incomes of dairy farmers by about 36%, just by helping them increase their yields and also preserving milk quality. So what ends up happening is just to give you a quick idea. It's kind of like the hub and spoke model on steroids where there's a milk collection center in every single village that they operate. Two women run that and two times a day, all the dairy farmers in the area bring their milk in. They sell it to these women who do preliminary testing and then twice a day, a very small truck comes by, picks up these 40 liter Jerry cans and takes it to a bulk milk chilling center. And then at that bulk milk chilling center, it's preserved, the milk quality is preserved because it's being chilled within three hours. And what Harsh has done is he's put, put this company together, which really is going to become a very strong aggregation platform of milk and also fruits and vegetables and some other things and then also a very strong distribution platform going down because they are moving physical goods and inventory. So when people used to talk a lot about microfinance institutions being a distribution system to the poor, what was difficult is that they were trying to push physical goods and services. Well, Harsh is just doing physical goods and physical goods up and down a value chain. So we funded about four companies. We funded four companies. We're getting ready to do another one here in the next couple months. Really focused on livelihoods and the idea that we have is that we're just trying to show some very simple metrics. We're not trying to burden our entrepreneurs with a whole bunch of different things because embedded in every one of their business models is that they need to improve the incomes either of the farmers or of the agents that they work with. Otherwise there's no value in that company. And some people say, what about mission drift? Will the company in the end start cramming down margins on their entrepreneurs? Well, the only thing that they have is their agents, is their distribution network. So if someone were to come in and buy that company, they would completely eradicate all the enterprise value of that company. If they started, I guess you could say, screw the people at the bottom of the pyramid. And you can see it happening. If people feel like they're not getting paid enough, they say, this isn't worth my time. I'm not going to do this anymore. And so kind of, we don't put a lot of things in stone that you always have to be doing X, Y or Z in order for you to hit these different social metrics. But we do make them report on what's the income increase. So at a very baseline, when we start funding the company, what are people making who aren't working with the company yet? And then after they start working with the company, how do they start to move out of poverty? How much more money are they making? How many more new jobs are being created? And we kind of take it from there. And kind of what we're looking to do is, you know, as opposed to a traditional kind of blind pool fund, which I think a lot of us are very, you know, very familiar with. And for those of you who kind of don't know how funds are structured really, as opposed to putting together, you know, 50 million dollars from investors and then charging a 2% management fee and 20% carry. What we've done is we're trying to really prove that these businesses are viable, that there is a pipeline of these companies. When I say livelihood ventures, nobody knows what I'm talking about for a good reason because we're trying to show that these are a different type of business. And kind of our approach has been, well, let's find a core group of really committed high net worth individuals, family offices, foundations who believe that this could be the next, I guess, the next type of business to invest in due to help alleviate poverty. And then let's just put together deals on a deal by deal basis, back these companies, give them the tools that they need, and really go from there. So we're constantly growing our pipeline of investees, our pipeline of investors, trying to do it in a very transparent way. And really kind of at the end of the day, taking an approach which United's has always had of backing entrepreneurs as opposed to backing real ideas and providing them with everything that they need to move forward. So we spend a tremendous amount of time helping to bake business models with the entrepreneurs iterating. It's not just a straight investment fund, which where we're trying to get assets under management and to go from there. Because if we have failed to prove that you can help generate wealth with the poor as opposed to just selling things to them, we think that we failed in our mission to actually prove the viability of livelihood ventures. I'm your harsh. Yes, I'll stand over here. I know that you have a great interest in studying the development of major cities. And so which role does social entrepreneurship play in creating sort of a great city or a great neighborhood? I think that what we've seen, whether it's in Jakarta or whether it's in rural India is just economic development really helps people feel very tied to their community and take a lot of ownership in their community. And whether it's women who can feel more pride because they're actually able to make more money and send their children to school. It really is helping to build a lot of community cohesion and making people feel a lot better about themselves. So really the whole idea is people aren't looking for a handout. They're just looking for an opportunity and we're trying to back businesses that provide a reduced risk opportunity for people to provide incomes for themselves. I mean Harvard Business Professor Robert Putnam famously argued in his book Bolling Alone That Social Capital Makes Us Community Successful. And how important are those social entrepreneurs in creating that capital or having difficulties in getting the capital they want to scale the business. Yeah, I mean I think it's kind of a double. I mean anybody who works in the space is kind of one of those double edged things where everybody says oh there's not enough investment opportunities but then where do I get my capital and where we're trying to play right now is kind of in that I guess weird area. You know there's lack of funding for entrepreneurs and lack of good businesses all around the. I mean I think it's kind of a misnomer for us to say if we if we if we just provide more capital it's kind of this virtuous cycle which we see a venture capital and whether it's in Silicon Valley when things started to move forward. I think that what you're going to start to see is as we build the whole ecosystem whether it's seed funders who are starting to come on the scene like village capital or United's just started a new seed fund which is funding people 50 to 100 000 dollars or if it's where we're playing between 500 000 and a million in equity or you need everybody up and down the chain and I think it just takes time. Obviously we're all impatient and we all want it to happen quicker but I think if we just kind of try forward and do our best and everybody kind of take a new niche to filling that ecosystem it's just. Do you recognize the same problem that the family was talking about me the missing middle that the people that wants to scale up. They have difficulties getting capital. Yeah so if you're talking about small and medium enterprises we definitely see that we funded a company in Bangalore India called Canary capital that does just that they fund small scale manufacturing companies who are trying to just need access to inventory financing so that they can increase their turnover and meet new new contracts or they need to buy some new I guess you could say some new assets which they can actually increase production. So pure capacity building money they're providing. Yeah I mean they're providing two to six thousand dollar loans to companies who want to hire more people and want to increase how many orders that they can take on. So we definitely see that. OK thank you so much. You'll join you later. Our next speaker is one of the leading social investment managers in the UK and I think recently he was head of CAF venture some 10 million pound investment company social investment fund and he managed investment in more than 200 social purpose organisations. And he's also the chair of the European social investment task force which advice EU member states on national social investment strategies. Please welcome Paul Chang. Thank you very much. It's a very exciting time in the UK. We have a growing and vibrant social investment marketplace that is continuing to evolve. We've been on a journey for 12 years now and another new infrastructure for the market is getting to assume form. There's a growing body of expertise around social investment and we are in a we feels like we're almost entering a new golden age of social investment in the UK. It's still very fragile and it's a lot of dangers ahead in the shaping of this market. Shared impact is a charity whose mission is to improve the financial efficiency and effectiveness of other charities. And social enterprises and was is a logical creation of coming out of the development of the social investment marketplace. The need is around working capital to charities and civil society organisations that is an overlooked need. And that is one of the insights we've had in the last 10 years around investing in charity social enterprises is that the financial needs of these organisations are similar if not the same as the financial needs of small businesses especially around working capital and balance sheet funding. So that may sound very boring and mundane but unless we get that right we're not going to build the social investment marketplace and the pipeline of investment organisation of charities and social enterprises that are investable will be broken. So it's a it's a it's a growing it's a it's a very unseen and deep need that is often overlooked by investors. And it sounds very boring but unless we can get that right then we have a real problem with our civil society. I think that there's actually a big danger happening within the UK market that there is almost a silent collapse happening within our small and medium sized charities because of access to this capital. It's almost like we are a marathon runner with a heart condition. And unless we have more funds providing direct finance to front line organisations tackling this problem. Then the backbone of our civil society will begin to erod. So that's the particular focus that I where I stand in the social investment marketplace. There are lots of other developments happening which are really exciting new products charitable bonds. We've heard about the scope bond that Jeff Bernan talked about yesterday. We have new market infrastructure. We have a new social central bank or big society capital which is providing capital and liquidity to financial intermediaries within the UK market. We have the social stocks change is launching next year. We have new platforms such as ethics which will make access to ethical products easier for the consumer. There's a whole range of market infrastructure that is taking place. I think it's important in this movement as we engage in our particular funds. What is the success? What does success look like and what are we actually trying to build? We're trying to build a robust social investment marketplace. And in each of our ways we're all contributing to that. But what does that mean? What is a robust social investment marketplace? It has four key elements and at the moment we all four key elements in the UK are weak and fragile. We need a resilient supply of capital that is using a range of financial instruments. So we need intelligent supply of capital that uses everything from debt, equity, equity like instruments and philanthropic capital. I think there's a huge misunderstanding around the power of philanthropic capital. There needs to be a distinction, a clear distinction between grant making, grants for projects and the use of philanthropic capital. In other words, capital that you can afford to give away. The capital that you can afford to give away is the most powerful type of capital because it can absorb infinite risk. If you can afford to give away money then surely you can use that money in many interesting, high financial risk but high social impact ways. So for example you can use them in guarantee funds. You can use philanthropic capital to create new types of financial instruments because you can use that capital for example in a first loss piece. So you can enable different types of funds to be created. There needs to be more understanding around the use and the imaginative use of philanthropic capital. I think the challenge is for foundations or the primary stewards of such capital to be much more imaginative in the way they deploy their endowments and the use of their grant making. There needs to be intelligent demand from organisations and that again is a huge problem in the UK market and I suspect around the world. So it's one thing to have a supply of capital but how are you going to deploy that capital out. Civil Society organisations social enterprises tend to have very simplistic understanding of finance. There needs to be much better understanding of financial statements and how organisations are run on a financial basis. So in particular a real understanding about profit and loss, the balance sheet and cash flow. What I find is that organisations tend to instinctively understand profit and loss and have a very poor understanding of the balance sheet. And that is a problem and it's also a problem on the funder side. Funders also don't pay enough attention to the funding of balance sheets. And fourthly the market needs efficient matching mechanisms. We need more intermediaries in the market that can signpost and efficiently match the supply of capital with the demand of capital. And again one of the issues in the UK and one of the reasons for the creation of funds like shared impact is that we don't have enough funds that provide direct risk capital to frontline social purpose organisations. And that is a big problem that is now emerging. So it's no good creating funds of funds if there's simply not enough funds out there. It is of course understandable why this is the case because it's difficult to create these funds. You have to raise the money, you have to collect a team of people together to who understand social investment and you have to start doing deals. So it's much easier to create funds of funds rather than to create these direct funds. So that is one of the challenges going forward. I think that there's huge opportunity in the next few years. But the jury is still out on how this market will develop. At the moment we are at a critical juncture in the UK it's very exciting. There's lots of new money coming in. There are lots of new products have been launched but still unproven. But there will also be setbacks and how will the market respond to setbacks. So the market will not develop in a linear way. And we still haven't come across those setbacks yet. But they will come and there are cynics out there who will use those setbacks to turn back the tide of social investment. So we have as a movement to be careful about how we both design products and funds and how we implement those products and funds. And the mistakes usually will occur in one or other or both of these arenas. I think that's the excitement and the challenge going forward in the next few years. But we should always pay attention that the real work of building this market is often the mundane and the boring. But unless we can get the boring stuff right this market will not develop. Thank you. In order to get funding for an idea to get the company to launch. You need a bunch of great ingredients in a good chef. And I know that you are a keen amateur chef. So please describe the recipe for getting more investable social entrepreneurs in Europe. The mentoring and the cultivation of entrepreneurs is a notoriously difficult problem. I think that it's a process that you can make. You can you can sort of swerve to do to two approaches that are wrong. One is to overplan. So if this is why not MBAs for example never become entrepreneurs. Because it's been so much time thinking about the business plan and analysis paralysis that they never actually get on and launch the venture. The other mistake is this the chaotic approach just make it up as you go along and just the launch and learn the launch and launch. But actually there is something in between which is to launch and to sort of learn by walking to actually get up there with a minimum viable product and to iterate. So I think that so I think the key thing I would observe about entrepreneurs is that the really successful ones iterate their idea. So the initial idea that you have as an entrepreneur is usually not the idea that you will eventually make you successful. So you have to have the guts to learn from the market and find out what value customers really will pay for. And then to move your business model to that. Men when when cooking you need to balance saltiness and sweetness bitterness with sourness and I'm missing a lot of these funds for social entrepreneurs. Now they need to balance several dimensions and factors. How good are they in doing that or are they sort of. You talked about understanding balance sheets about sort of. I think in the in the creation of funds in the impact investing space and social investment market. It's it's important that we don't lose sight of why we engage in social investment. We're all engage in social investment to help the beneficiaries in order to promote positive change in society. So when we design these funds or to design new financial instruments we should always work from the ground up. These these instruments are designed to help this particular target beneficiary group and then you design the fund back to the right types of investors. The mistake I see warringly being made is the process is back to front. So people start from their investors and what they want and usually they have unrealistic financial return targets. And then the fund is designed to panda to them. And then the problem there is that then the fund doesn't really address the real needs of the marketplace. Interesting. We'll get back to that later. Thank you so much. And a next speaker. Yes. He's not in the. Our next speaker. If you look at his bio you get the impression he's been all over the place. He's been one of the leading venture capitalist companies in Europe. He's worked at the tech startup found the stuff for companies in Munich start electrical engineering in France and got an MBA in Berkeley in between. Is very fitting then that he's become the first head of investment at the social venture fund the first pan European all over the place impact investment fund. Gissar plåterna speaker Florene Aber. Thank you very much. And I'm happy actually that Paul here. So we're because I will be talking about the developed world and we had a lot of sessions here about the developing countries and the billions which are managed there. Our world is a little bit smaller UK is growing now. Men I'm Florene. I work for the social venture fund. I'm a co-founder. We are based in Munich. Many of you know the famous Oktoberfest another social event with a little different outcome. A few facts on the fund. It's structured like a classic private equity fund. We specifically did that to have. Right now a few but have institutional investors feel comfortable in the structure itself. The fund is a little bit over 7 million euros large. We are investing since end of 2010. The ticket size about 500000 euros per investment in European social businesses and there is no hard criteria on the themes. It has to be impact which is you know you can have a long session. What that means. One good way to describe it is that we like businesses who are directly just mentioned it working with the beneficiary. So not any CSR initiatives or projects but something which does something directly and so it's a direct social problem. We invest all over Europe. I come to that. That's my core topic to tell you a little bit about our approach. And yeah we are about five people in Munich. So Johannes Viba and I are the founders of the fund. So I want to talk a little bit about pan European investing. We are based in Germany and if you hear a lot about Germany in the news right now economy is great. We have low unemployment but we also have in Germany social challenges. I'll give you at the end two examples where we are actually working on helping the state and be more efficient working with certain groups. Now why are we having this topic of European investing and when we go after a topic or find a social business which we really like which addresses an interesting or a big social challenge and we want to invest in the best of breeds. So that means the best innovation but also in the best team and we are not looking then only within Germany. We will look all over Europe. What's the best approach to this problem because only the best approach has the chance of solving it and scaling up. And for this you have two scenarios a little bit out of also out of a German investor perspective which is the majority base of our investors. You try to either find something within Germany build it and then scale it out to other European countries. It's in technology venturing a classic approach how you scale something and out of impact investing expectation. It also scales the impact beyond borders and the other approaches if you actually find out the better innovation and team is outside of Germany. We try to finance that company often with regional investors and then bring that actually back to Germany or other countries. So there's no limitation on where we scale it. There's a challenge with that. Paul touched it a little bit. You have to think about it from the day one when you set up your fund because the expectation of the investors has to match that approach. And the typical what we also notice when we were fundraising which is we went through that that's the toughest part. So for every entrepreneur in here we also have to raise our funds and it's not a very easy job. So the investors most of them like to invest in front of their door. So preferable and I live in Hamburg. So I want to find something around Hamburg and often it's in the news and then the investor feels happy about it. So we were really pushing on the topic not to limit our fund and the expectation of investors only to Germany and found a good base of investors from I think four countries we have. We have Germany Switzerland Austria. We have UK funds and UK investors foundations into our fund which was really a big thing to get this UK world into a German fund and the first time and we have one bank which is actually the mother is unikredit. So it's almost it's Italian who is part of our investor base. The second challenge you have when you have solved that part is the business is to look at have to fit that philosophy. So not every business can be brought in any other country because not only the languages obviously but the cultures are differently but the governmental systems and many social enterprises rely on certain income areas from the state. So the state system is not a health care system is not set up to support that. You have to be careful to expand in these countries. So that's something we always have to have a very clear eye on and that's why we need usually local teams expertise and most likely co-investors or investors for that case who are familiar with those markets. For the approaches you have on on on scaling out the businesses. It's you know you have you can try to license if you are technology driven company or product driven and you can try to the franchise approach. I know there are a lot of discussions about social franchising. We looked at it a lot. I'm a little skeptical that the whole franchising works that easy because it's about the people who then just giving a franchise license out will not be successful. So you have to find the right team. So we'd rather work than with subsidiaries or partner companies or even set up our own entity over there with the investor together. Maybe two examples. So we're not only thinking about this. We not all the way to two of our investments. We already pursued that approach. The first one was our first investment end of 2010. It's a company called Rubber Voice and it has an internet based translation service for deaf people. So helping them communicate hearing impaired, helping them communicate in a very efficient way. We now build up the company in Germany. They're close to break even this year. So that's you know one of these major hurdles. Every startup has to overcome at some point and we already have talks with different entrepreneurs in different countries in Europe. But also funds to work out a way to scale them out into different European countries and we'll have to find out the one which fits best. And but it's a product which is in general totally universal. So you can use the product if you have the right team in place in another lands UK or even at some point division of the founder. There is to use it even in Africa wherever you want. The second last example is a topic which we pursued that since the beginning of the fund which we really love is helping people with autism especially Asperger's syndrome to get back to professional life and they have really the gift to work very diligent and you can use them as IT consultants and for quality control. And there are a lot of concepts we didn't invent it and there are a lot of concepts around Europe even the US and I think even Asia who pursue that approach but it took us one and a half years to evaluate all of these and see which one is matching actually in Germany. Best considering the German system how you get the funding because most of these incomes is is part of the from the corporates at the end when they work but in the training phase when you coach them and you need some government from the health care services some money and we found a company in Belgium which is a little bit under the radar screen in that market but they are actually the largest in the sector and we first wanted to fund them because that was our idea we fund them and with their help and then they really have some money and time to help us build it and they said no we don't need money we'll help you anyhow so they were a profitable company he said you know it's he has a charitable limited so he cannot even take the money or he has to he has he's profitable he doesn't need anything so they were helping us anyhow and we had the right team in Germany and found it that helped founding that company and set it up and with that approach we're building it up now in Germany. So that's that's our approach and I hope we'll have soon more funds thinking that way. Great thank you tell us the name of the last company again so we know the company is called Autikon. I mean you look like a very normal guy and you have a normal background and market venture investing and so on. Are there any difference between scaling and normal business and social enterprise. At the end of the day what I always try to when I talk to the social entrepreneurs they're all doing good and they're doing very good stuff but the real world is tough for social entrepreneur normal entrepreneur the market is out there it's tough they have to work Paul mentioned it a little bit on on their financials they have to go out there sell something it's not free doing good doesn't mean that you grow doing nothing. So the the challenge is it's almost bigger because they try to balance the social impact with the with the financial impact just at the discussion yesterday with our portfolios which you know that the founder would like to focus on a certain part of the business which has right now the highest social impact but I am pretty sure that if they would pursue it for like half a year the dangers hide that the whole company collapses and then it's for nothing. So sometimes you actually have to sacrifice a little bit of a social impact to win the game on the long run. So changing the world means that you have actually a tougher journey ahead. Ja. Just want to be the normal company exactly. And so how you how do you manage these entrepreneurs. Then I mean when you do these investments I mean even you do if you look discipline I know you get manipulated by your daughters. So make sure you not get manipulated by these entrepreneurs. That said that we're just so that's why you know there's the private equity has some good mechanisms there to structure that with reporting you have certain shareholder rights as much as you trust in the first moment each other that's why you do the deal you know they have to trust you as a social investor and you have to trust them to build up the business. But at the end of the day they have to be some terms in place which control them their mean and everyone hates them when you negotiate it but it helps you set the stage and the discipline and I think at the end often helps to to grow the company. Nevertheless you have to say in even private equity you know some people run around and I built this company I was the investor. It's the entrepreneur who builds it at the end of the day. It's more the protection of the money because it's not our money if it would be mine. There are some people I would give it right away because I trust them but it's third party money and we will only open these pockets especially institutional pockets if it's professionally managed. Thank you so much. Join me here and please give me my hand. We will start taking some questions from the audience if there are any someone waving over there. You are on his fast feet again. Hello I'm Tony from Eco Capital. I've been sitting here for a day and a half listening about impact investment impact funds etc. Gick in some really interesting ideas but I came to this one looking for new funds doing new things and it sounds like it's especially Fabio, Bo and Paul. I'd love to hear your thoughts on accountability. What I haven't heard is accountability. You know you give these funds to third party intermediaries or whatever and I'm not hearing about the accountability the other way from the grassroots up whether or not the investors are actually being asked to be accountable to make sure that the impacts that they are supposedly financing are actually not only actually happening from a measurement point of view but there's accountability which is a much broader issue than just is there an impact on how many jobs were created and how are you working with measurement gentlemen. No it's not about measurement it's about accountability. I'm sorry what do you mean exactly. Well when you're investing you invest especially Fabio you and I spoke about this yesterday but you're investing in third party so they're going to send out they're going to actually give the loans. How about the people that are looking for the loans and they have an idea of how this money is supposed to be able to help them and to move them forward. Yet the accountability where does the accountability from your side. Where does it begin. Where does it end and whether or not it's pushed down or pushed up. OK. So I briefly explain our investment process. So our investment process is true is concentrated on the intermediaries but you cannot understand the intermediary if you don't go and look for the clients. So in fact when we do a full due diligence it's the same. We I mean we've been doing this for seven years now. We've done 600 due diligence each time we go and see the clients because we have to get we have to understand if what the people the management or the board of the financial institution is saying is true and is also respected at the other end of the client and most of the investors that invest in a macrofinance fund or a small enterprise fund. They do it because they target the end client. So for them it's also very important to have a story. So typically in on in symbiotics what we've been doing in when we started the credit risk report was enough to assess the risk because microfinance was good. Nobody was questioning the fact that microfinance was good. But in 2008 2010 people started to questioning because in fact it was much more complex than just giving a loan to a farmer etc. You will be in the industry was growing very fast and getting more complex with some consumption specialized institution entering the market. So we've decided to create a social responsibly report to complement the decision making process of the investor and saying OK. You have a triple B credit risk and you have a triple C in social responsibility. So maybe that's something that the fund manager doesn't want. So typically that's something that's how we we've addressed a bit. The social impact issue in our in our process. So up to now investors especially private clients. They come mostly for the story that it brings. It doesn't mean that they don't look at the return. They look at the return. It's a financial instrument. It's it's standard in that sense. But they like the story that is behind. Then we have another bench of clients especially the pension funds. They rather look at the financial aspect and they like it because it's resilient. It's stable. It's four to six percent per year and they like it very much. And the story is also important but it come on the second range. I'll stop there and you can talk later on because we I want to make sure that we get a few questions from the audience and we have someone here. I have two questions and Florian giving the size of your fund. You're clearly not in it for the money. I've been a VC myself. So with that fund you're not going to get rich. I would. So two questions to Paul and Bo. Would you also mind sharing your business model and the size and the structure of your fund with us so that we can get an order of magnitude of where you are and how you operate as a business. Firstly and secondly because my assumption is that your friends are also relatively small if you compare to mainstream private equity or venture capital funds. So the next question is for Paul. What is happening at the European level to help scale this up because you are involved in these activities. And I think that would be interesting to share with the audience. The books quick about your business model and then we'll move to Paul. Yeah. I mean you hit the nail on the head. This isn't an asset management play for us. And you know we have a very strong relationship with United's nonprofit which helps us out on operating costs and with the idea that they share in a lot of the management fees and carry that will come from these deals that we put together. So going on in the future the idea is that we will put together a robust enough portfolio that we will be able to stand on our own within a one to two year period. But until then we receive a lot of support from the nonprofit. This proved that likely adventures are scalable. On the on the European level we are still working about to prepare for the new structural funds that will come in 2014. There's again a real problem of investment readiness at all at all levels. So on the demand side social enterprises getting them financially literate on the funders side getting them how you manage these funds and on the government side how what interventions can governments do. To catalyze these markets. So there's still a lot of preparatory work to come. But that is what we now recognize the issue around preparing the ground for the launch of the new European funds. Well the next question over here. Yes Simon Chisholm from Resonance. We're a UK social finance company launching a number of direct impact investment funds this year. Really common theme I can hear from today is that you know there is a lot of innovation happening in the sector and a lot of new funds coming to market. And another theme from the last couple of days has been to what extent we try and kind of create new things or use the existing channels that exist. So I've got two general questions for the panel. One is you know where do they see that balance in terms of creating new structures versus using the existing distribution channels that are out there with the traditional finance institutions. And the second is you know how do we avoid creating an excessive cost space because we need to demonstrate to investors that actually what is being produced here is also a cost efficient solution. So where can we find innovative ways of being more cost efficient in this structure. I'll have Florian answer that. I would answer the first question. So I wouldn't say it's much innovative to copy private equity to the social sector. You know and doing pan European. Going back to what I said before where you have to be. So the reason why I do that is that many investors are only comfortable in that zone. So they know the structures. They know the contracts. That's how you get for now a little easier. The investors we do have to be very innovative and that's a challenge and no one could teach me that from my past because it did classic venture capital lot and is how you structure deals with social social and personal social businesses. You know it's the total different. You know the whole big discussion. Will there be an exit. How will it be. Is it fair. I don't know who said it. It's that the emperor usually wants to buy it back. But you know you need to make a return. That's all very tricky stuff. And everyone has to be comfortable with it. And you sometimes feel in the middle while you play a little bit you know you control them there. There fades for the future and they're totally scared of that. You know the normal tech entrepreneurs only scared. I will I sell high enough. You know will this be the next big thing. The social entrepreneur is very worried about his mission. So you have a lot of different conflicts of interest when I'm structuring those finances and and that's where you have to be very innovative. And I think we will learn a lot over the next months years and how to do that. And apart from that I think there should be much more innovative finance. And I think Paul is more in that ways of financing. You know also early stage and charitable entities. Thank you so much for sharing final comment. I just want to add something because the question is very relevant. Because I was presenting one of the product which is the one with Oxfam. And and and so Oxfam came to us and say we want to target small enterprise. So we look at our model and we thought look it can work. But we have to adjust a bit because it are not only financial institutions doing small enterprise investing. There are specialized banks. So we have to find them. There are local intermediaries which is another story. But locally intermediaries as I said to three quarter are doing equity which is something new for us. So when you have such a demand coming from such an institution you have to think how to keep doing the same thing and not like reinvent all the time. The story keep doing the same thing with the same efficiency and do it well sustainably with sustainability. Because the efficiency in that world is very very key. You cannot start doing things if you don't cover your cost. So we cover our cost and our growth and we do it efficiently. And typically Oxfam wanted initially to target directly the small enterprises. But forget it you cannot come from from UK or Geneva and target small enterprise and expect a return of that much and and everything is fine. I mean it doesn't work like that. So you have to be innovative but keep the same the same structure. I mean we haven't changed our investment value chain doing this new fund. So that was my and on that note will end from here.