Creating Social Impact Thursday, 9 May 2013 Panelists: Harvey Koh (Moderator), Director, Monitor Deloitte Annie Chen,

n, Founder, RS Group Kristin Lindsey, Chief Executive Officer, Global Fund for Children Michael Traill, Chief Executive Officer, Social Venture Australia Wolfgang Hafenmayer, Managing Partner, LGT Venture Philanthropy Session Summary: Harvey Koh: This panel will focus on the how, why, where of doing this work. As an introduction to the topic, a question: Can markets be part of the solution to poverty? The short answer is: it looks like it might work. Some problems cannot be solved by markets when innovations are young and waiting to scale. There are two worlds: philanthropy and investing. The overlap of the two is the quest for better solutions. Annie Chen: My perspective is that of a capital provider. Im part of a family office and my own journey has been about coming from a tradition of giving. I had this idea of social entrepreneurship. How do we provide the appropriate type of funding across the spectrum from nonprofits/charities to for-profits? Hong Kong has seen an interest in impact investing and venture philanthropy. There are many small projects, but which are sustainable and will have impact? What was clear to me was that we all just wanted to invest in those projects with a high chance of success but its too early. Weve used philanthropic dollars to support initiatives and conferences to raise awareness about social entrepreneurship. Weve created spaces, research efforts, and were also looking for investments to make. Kristen Lindsey: The Global Fund for Children has existed for 19 years. We have invested in 500 NGOs. We have 300 groups in our portfolio and are in 17 countries in Asia; 30 percent are in Asia. We are addressing some of the hardest challenges: human trafficking, war and conflict, and girls in oppressive cultures. We do this in three ways: 1) we look for local organizations (people are determined to solve the problems that are affecting their children), 2) we support emerging organizations, typically budgeting less than $100K, and 3) we seek organizations that have high potential (with leaders who are really smart) and that have a high potential for replication. We take a bet on nascent, local leaders, with innovation solutions. We provide 6 things: organizational capacity, program capacity, financial capital, social capital, knowledge capital, and leverage. As a conservative estimate, for every dollar we put in, we add 40 cents. This all adds up to: o 28 million dollars invested 1

o o

Ratio of 1:7 of how many dollars follow our dollars 9 million: the number of children reached by our support

Wolfgang Hafenmayer: LGT Venture Philanthropy tries to increase the quality of life of less advantaged people. This is our desired outcome. For us its more about the outcome. We identify organizations, analyze them, and we dont care if its for profit or non-profit. We want to place money in an efficient way to improve outcomes. We place our money where we can achieve as much impact as possible. Those who do it in a good way do it in a way where they can pay us back. A true partnership is interactive and we really see them as our partners to achieve these goals together. I dont see this difference between philanthropy and investment. Our core focus is on helping organizations to prepare and to scale. In a few regions such as SE Asia and China, where organizations are less mature, you dont find enough investment opportunities. We have to go one step earlier in the validation stage. Our local incubation partners, with our team, identify young social enterprises, to invest up to $50k, for management know-how or technical capacity-building. We also have to collaborate with local mentors. Michael Traill Social Venture Australia is focused on education and employment, especially underachieving people who are children of disadvantaged parents. GoodStart is a case study in impact investing with four nonprofits: Social Ventures Australia, Mission Australia, Brotherhood of St Laurence, and Benevolent Society. To raise money for this acquisition, we needed $165 million, without a cocktail capital structure from government. The business structure is such that surplus is redirected back into the organization. Business discipline is combined with high quality childcare. If this was a legitimate asset class, wed liberate $30 million in Australia to do good stuff. Pension funds have average returns of 4.4%. So this is a direct response to being able to use pension funds responsibly. Audience Questions: Please describe the blend of capital. It all sounds good in the market where you take grant money (as a write-off) and some funding that demands a return at a commercial market rate how do these coexist? Traill: We thought 12 percent was a reasonable return. Our view is that in the emerging markets, the early days, it depended on early adopters. They must be convinced that it is a legitimate, conservative asset class. Early adopters are high net worth individuals and foundations. Hafenmayer: Some work and some dont. In Africa, they went to European markets and got the money for free. Some might say that with such an investment, that includes management networks, is a benefit, but not all grantees get that networking. There is not a

black and white answer, because it depends on the individuals, their diligence and responsibility. Ive seen both positive and negative examples across all these over the years. Lindsey: An example is of building up a base to graduate up to getting bigger funding. Another example is a night-school that is planning to go ask government to adopt its curriculum in four states. We provide risk capital, and all those other supports, to make those investments. Chen: I dont have baggage, either intellectual or in terms of experience. I came with an open mind as to what I wanted to do. I just saw that it was important to nurture the space. Its about the pace of growth and whether you can accelerate it. Also, in the Hong Kong context, which is such a limited and small place, you can meet the key actors. Getting to know the people is the most important part. Since its an early time, youre not faced with hundreds of candidates, so it was a small pool.

Just as some organisations that are too small to scale up, is there a problem with organizations that are too large to fail? Is there an example of an organization that is so large? Has it failed and was size a responsible part of that? In micro-finance? Lindsey: The typical problem is that of being too small to survive, not too big to fail. Our work requires a lot of trust. I think there is a scale bias. There is an assumption that you must scale to be successful. Go big or go home. Sometimes scale is going from one state to four states, and beyond that is failure. To get to those four states would still be a tremendous success.

For both impact investing and venture philanthropy, the danger is a lack of successful sourcing and tier sourcing. What are your suggestions for addressing the lack of deals? And lack of successful exits? Traill: Fundamentally, it is about a mature market sector. We have to have clarity regarding financial performance and social performance. We have to focus on business discipline to enable social outcomes. We need clarity of evidence. The difference between business and the nonprofit world is that in the nonprofit world outstanding leadership is more important, and community engagement is profoundly important even over systems and structures.

Can we democratize sectors and develop retail venture philanthropy? Is it possible to open venture philanthropy to the non-high net worth individuals? Hafenmayer: Efforts at democratiziation include crowd-funding. I just think its a dream to democratize. I think were going in the opposite direction with more regulation. It will be harder for retail investors to invest. In some places, it is even illegal to fundraise publicly. The direction is away from democratization. I dont think there is a large market out there.

Venture philanthropy and innovation are terms that are overused. When something is new or different, are we over-emphasizing that aspect by forcing organizations to be innovative, when in fact, the work is done not out of innovation but need? How do we really look at innovation in the context of venture philanthropy? Hafenmayer: You dont find the word innovation in our material. Were looking for good solutions to improve the quality of life. If an existing solution works and just needs to be scaled, fine. But we dont have all the solutions, obviously. We will need new solutions. We should not focus in innovations and only invest in super-innovations. In the long-term organizations should be allowed to fail. If no funders, if no one sees the value in the organization, or its efficiency, maybe its better to fail. There is nothing wrong with failure then there will be other solutions. Chen: If you are an investor, regardless of investing in venture philanthropy or impact investing, its about knowing and understanding yourself and what youre looking for and being truthful about that. The clearer you are, for an investment, the greater likelihood of getting a good match.

Key Takeaways: The panelists described a wide array of tools for reaching desired outcomes. The continuum of tools, from venture philanthropy to impact investing, can be appropriate under many different conditions: the size, maturity, leadership, and complexity of an organization or project. Work will be needed to further specify the right tool for the right condition - while not losing focus of achieving desired outcomes. Future areas for development include developing a mature market sector and building an ecosystem the range of tools and approaches: conferences to raise awareness, research, and even physical space to facilitate collaboration, developing clear evidence and data, engaging communities, and growing leaders, infrastructure and systems. Navigating this work is about adapting what youre doing to the realities of where youre working.