P gold

Investing In Social Change Harnessing Entrepreneurs and Capital Markets to Drive Social Change through Impact Investing

Columbus The Global Interdependence Center Peter A. Gold, Esq., TheGoldGroup, LLC. Salt Lake City, Utah: January 20, 2015

1

Setting The Stage • • • • •

Delivering Services Efficiently Accessing Capital and Markets Collaborations and Partnerships Pay Only for Specified Results Shifting Some Risks/Costs/Failures From Government to 3rd Parties • Creating 3rd Party Profits or Net-Revenues to Assume Risk and Provide Capital 2

Pay For Success FinancingSocial Impact “Bonds” • Designed to reduce Government’s Costs to Deliver Specified Services • Designed to incentivize 3rd Party Capital to Contribute to Paying for Service Delivery • 3rd Parties Get A Specified “Return on Investment” If Specified Objectives are Obtained • Conceptually, ROI comes from “Savings” To Government/Society from intervention 3

The Players: • • • •

Constituents (Direct Beneficiaries of Services) Governments (Set Priorities, Partially Fund) External Service Providers (Not for Profit, For Profit) 3rd Party Investors (Foundations, Ind./ Organizational Philanthropists, Private Investors, Social Impact VCs, Banks (CRA)

• “Intermediaries” (Project Managers/Organizers, Raises Capital, Evaluates Performance, Distributes ROI to Investors)

• Independent Assessors (Have Outcomes been Obtained?)

• Others : (“Executive Leader”, Regulators, Legislatures, Courts)

4

How It Works (Generally) • (Note: SIBs are Not “Bonds” but a series of contracts among stakeholders)

• Hypothetical: – $25M Government/Tax Payer Savings From Programs/Interventions – Less:$20M Costs: ($15M to Service Providers and $5M Cost of SIB Structure, etc.)

– $5M Net Savings from SIB From Which Agreed ROI can be paid to investor(s) 5

Pluses and Minuses • Generally, it has to work to be fully successful!

Stated Goals must be met within terms of Business Plan • Theoretically, Government’s initial spending is reduced by amount of Investor Capital • Theoretically, Increased Efficiencies: a) greater alignment among stakeholders, b) Active Management by Intermediaries, c) outsourcing Government “Administration/ Management” 6

Acknowledgements/ Sources (partial list) • • • • • • •

McKinsey & Company, From Potential to Action: Bringing Social Impact Bonds to the US, 2012.

Federal Reserve Bank of San Francisco, Investment Review, S. Godeke, Community Reinvestment Act Banks as Pioneer Investors in Pay for Success Financing; p. 69.

Goldman Sachs, J.B. & M.K. Pritzker Family Foundation, United Way of Salt Lake, Fact Sheet: The Utah High Quality Preschool Program, 2013.

National Venture Capital Association, Venture Capital & Social Entrepreneurship, www.nvca.org, 2014.

Www.forbes.com, A. Field, Biggest ‘Social Impact Bond’ in the U.S. Targets Recidivism, 2014.

Goldman Sachs, Trends in Business, Social Impact Bonds, October 2014, www.goldmansachs.com.

National Governor’s Association, A Better Bottom Line: Employing People With Disabilities, Blueprint for Governors, 2012-2013 Chair Initiative.

7