Making the grade/ 2010-2011

making the grade 2010-11 A report to supporters of the Private Equity Shares Campaign for Central & Eastern Europe

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Making The Grade: 2010-2011

Table of Contents 3. About NESsT 4. Letter from Private Equity Shares (PES) Signatories 5. PES Campaign Supporters 6. PES Campaign Summary 7. NESsT Strategy 8. Planning Stage Impact 9. Incubation Stage Impact 10. Portfolio Summary & Achievements 11-13. Portfolio Profiles 14. Promoting Social Enterprise & Private Equity Philanthropy in Central & Eastern Europe (CEE) 15. Leadership 16. Governance Š 2012 NESsT

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NESsT Mission NESsT develops sustainable social enterprises that solve critical social problems in emerging market countries.

Who We Are NESsT is an international non-profit organization founded in 1997. NESsT works as a social enterprise catalyst in 10 emerging market countries: Argentina, Brazil, Chile, Ecuador, Peru, Croatia, Czech Republic, Hungary, Romania and Slovakia.

Strategy

Private Equity Shares

NESsT achieves its mission by combining

Private Equity Shares was created by

the tools and strategies of business leader-

NESsT to make philanthropic giving easy

ship with the mission and values of non-

and effective for the private equity indus-

profit entrepreneurship.

try and to promote excellence in venture philanthropy. NESsT works much like

NESsT works to plan, assess, launch, im-

private equity firms do. We ‘invest’ philant-

plement, and measure the impact of social

hropic capital in a portfolio of social enter-

enterprises. Throughout this process, we

prises by supporting the portfolio with ad-

seek to expand entrepreneurial capacity

vice, and ultimately seeking to exit our in-

by providing technical and management

vestment by ensuring the social enterprise

tools and ongoing one-on-one support.

is able to stand on its own feet.

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Letter from PES Signatories Dear Private Equity Colleagues, You may be wondering how the Private Equity Shares campaign to support NESsT’s important work in CEE has been managing during the global financial crisis and uncertainty. We are happy to report that with the generous support of more than 20 private equity firms, we have successfully raised €314,000 to benefit efforts to support social enterprises in the region, surpassing our initial goal of raising €300,000.

This was not easy. During a market downturn, the challenges abounded. Yet private equity firms and their advisors opened their wallet and donated their time to meet the increasing demand for NESsT’s services in CEE. As unemployment rates for people with disabilities, minorities, and at-risk youth soared – and the level of philanthropic donations to support them collapsed – Private Equity Shares provided the needed support to launch and incubate social enterprises responding to community needs. We are grateful for your involvement and the impact it is generating.

The signatories of Private Equity Shares believe NESsT’s mission is unique in CEE. It’s about impact and sustainability. NESsT is efficient with our donations and its affinity with the private equity model makes us confident that is it the right approach to solve critical social issues in the region.

We believe that by reading this report you will be impressed by the momentum in Private Equity Shares and the impact of NESsT. The organization is growing its work by expanding support to for-profit social enterprises. It’s also scaling its most successful portfolio enterprises and complementing philanthropic capital with loans and equity.

The cases profiled in this report are innovative and inspiring, demonstrating the real impact the model has on the lives of marginalized people.

We would like to thank you for making Private Equity Shares a success and supporting NESsT’s work. We also hope you will be motivated to continue and increase your support this year – and convince your colleagues they should get involved as well.

Thierry Baudon Mid Europa Partners

Joanna James Advent International

Robert Manz Enterprise Investors

Saki Georgiadis Hermes GPE

Daniel Lynch 3TS Capital Partners

Joseph Schull Warburg Pincus

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PES Campaign Summary The Central and Eastern European private equity industry successfully raised €314,000 to benefit NESsT’s efforts to support social enterprises in the region.

The following foundations and The 2010-11 Private Equity Shares campaign raised €314,000 from 21 supporters across Europe. The amount raised surpassed the €300,000 campaign goal.

Pledges were received from a wide geographic group of individuals and firms from eight countries, including Austria, Czech Republic, France, Hungary, Luxembourg, Poland, the United Kingdom, and the USA (see list of supporters on the following page).

Private Equity Shares funds represented 41% of NESsT’s total CEE budget for the years 2010 and 2011, or roughly €766,000. Funds were used to support NESsT’s portfolio and operations alongside donors from other foundations and trusts and from NESsT’s selfgenerated income from its own social enterprise, NESsT Consulting . Private Equity Shares plays a critical role in supporting social enterprises and marginalized communities in CEE given the limited international donor engagement in the region.

trusts are among those providing co-financing to NESsT alongside Private Equity Shares.

Trust for Civil Society in Central and Eastern Europe

Forty-eight percent (48%) of NESsT’s CEE budget was allocated to providing capacity support to NESsT’s portfolio, including mentoring, training, and performance monitoring. Thirty seven percent (37%) was allocated to investments, including grants, loans, and equity. The rest, 15%, was allocated to management and operations (see chart).

EUR 112,500

EUR 286,900

EUR EUR 366,600 366,600

Capacity Support (48%) Investments (37%) Management & Operations (15%)

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Private Equity Shares supporters also provided pro bono assistance and expertise to NESsT by reviewing business plans, assisting with investment decisions, and mentoring social enterprises.

More than 40 private equity professionals are part of the NESsT Business Advisory Network in CEE.

Supporters NESsT wishes to thank the following donors for their generous contributions to the Private Equity Shares Campaign for Central and Eastern Europe.

Signature Partners Thierry Baudon Mid Europa Partners

Saki Georgiadis Hermes GPE

Joanna James Advent International

Daniel Lynch 3TS Capital Partners

Robert Manz Enterprise Investors

Joseph Schull Warburg Pincus

Campaign Supporters

Anne Fossemalle, EBRD Julian Garel-Jones, Polunin Capital Partners Ulrich Grabenwarter, European Investment Fund Franz Hoerhager, Mezzanine Management Anne Hutton, EBRD Alan McKay, Hermes GPE Alessandra Pasian, EBRD Brian Wardrop, Arx Equity William Watson, Value4Capital

Supporting Partners

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NESsT Strategy NESsT has launched and invested in over 100 social enterprises in 10 emerging market countries, through our unique and innovative portfolio methodology. These social enterprises provide marginalized communities improved quality of life through economic opportunities, basic services, access to information, and socially and environmentally driven products.

Capacity support

Incubation. NESsT works with organizations & entrepreneurs to assess the feasibility of their social enterprise ideas. NESsT NESsT created a unique method- also provides tailored capacity ology to support the develop- support during launching and ment of high-impact social incubation. This support is comenterprises, from idea through bined with impact measuring, to scaling. position social enterprises for long-term sustainability.

Scaling.

NESsT consolidates social enterprise operations, and provides a high level of tailored support to expand and/ or replicate the enterprise, with the goal of increasing social impact and developing policies that ensure systemic change.

Venture Grants. NESsT provides funding for organizations and entrepreneurs to complete a NESsT provides a diverse pack- rigorous feasibility study proage of multi-year capital to cess to test the viability of their invest in social enterprises at business idea; to implement every stage of their develop- their business plans for social ment. enterprise; and to develop core systems to improve effectiveness and impact .

Loans + Equity. NESsT invests in social enterprises with the capital needed to pursue an appropriate strategy for significant growth, and to secure new infrastructure and management needed for expansion and/or replication of their enterprise.

Thought Leadership

Appropriate financial instruments for social enterprise.

NESsT fosters an enabling environment for social enterprise, and promotes the use of mixed financial instruments including philanthropic capital and soft loan and equity investments which respond to each stage of enterprise development.

Investment

Since 1997 NESsT has been at the forefront of social enterprise development, conducting extensive research and documenting and disseminating best practices and lessons learned.

Early stage social enterprise support and investment.

NESsT promotes supporting and investing in social enterprises at the earliest stage of their development, as this is crucial in order to develop a strong pipeline of investment-ready social enterprises that will succeed in the long-term.

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Planning Stage Impact Planning a social enterprise is challenging work, particularly at the early-stage when social enterprises are assessing the feasibility of their business ideas and developing business plans. Given the limited experience of social enterprise managers in business development, the process requires high levels of capacity support in the form of workshops and individual coaching. NESsT provides this support by organizing Social Enterprise Competitions in each country in CEE. NESsT measures the impact of its capacity support on organizations that participate in Social Enterprise Competitions using the ACCESS questionnaire. Results are analyzed and used as a basis for improvements as well as published and disseminated widely.

Eighty-four percent (84%) of the organizations that participated in the competitions responded to the ACCESS survey. The results demonstrate that NESsT Social Enterprise Competitions significantly strengthen the capacity of organizations: 

“We were able to discover our weak points, but we also received the confirmation that we have begun with a good foundation and are headed in the right direction.”

To date, over 3,000 organizations and entrepreneurs trained in social enterprise planning



100% of the organizations participating in the process would recommend the process to other organizations, and 88% would be interested in re-entering.



On a scale from 1 to 5, with 5 being "excellent", participants rated their overall experience in the Social Enterprise Competition at 4.5.



On average, 80% of the organizations that received NESsT capacity support gained knowledge and skills in social enterprise planning, including financial analysis, operations, sales and marketing, and market research.

- Halfway House, Slovakia

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Incubation Stage Impact In 2010-11, there were 23 social enterprises in the NESsT Central & Eastern Europe Portfolio providing economic and social inclusion opportunities to marginalized groups.

15%

Social enterprises in the portfolio, generated, on average

Increase in the number of beneficiaries reached through social enterprise from the previous year.

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permanent, sustainable,

employment opportunities

Social enterprises in the portfolio increased their income by

for local marginalized groups, including people with disabilities, at-risk youth, low-income women, ethnic minorities, and others.

25% and

47%

“The partnership with NESsT has been a key factor in the development of our organization, our region and our future work. We have learned a lot of very useful business skills and built local partnerships which many other villages are now interested in replicating.�

- Zuzana Sitarcikova, Vydra, Slovakia

Social enterprises added jobs at a rate of per year, despite a global recession*.

28%

are meeting or exceeding their Social Impact and Enterprise Performance Goals.

NESsT Enterprises reached over

60,000 marginalized people, providing them

economic and social inclusion opportunities.

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* Jobs created by social enterprises with an employment generation model.

Portfolio Summary & Achievements Due Diligence

Investments

Our due diligence has two objectives: selecting high-impact social enterprises and building the capacity of organizations to pursue their business activity even if they don’t receive long-term support from NESsT. The transfer of knowledge and skills takes place over a one-year period through Social Enterprise Competitions. In 2010-11, NESsT organized nine competitions in five CEE countries.

In 2010-2011, NESsT made 14 new investments in the region. The new investments increased our CEE portfolio by 64%, to 23 social enterprises.

NESsT evaluated 115 early-stage social enterprises in CEE on the basis of their potential social impact, sustainability, and team. We’ve seen an important increase in the number of social enterprises applying to receive NESsT support, with a total of 285 applications. In Romania alone, NESsT received 85 applications to enter our portfolio (a 157% increase over previous years).

We opened offices in Croatia and the Czech Republic to grow our portfolios in those countries. This gives us the ability to reach more social enterprises, especially in rural areas, where poverty remains high or access to basic services is limited.

Portfolio Overview by country

Of the investments made during the two-year period, 71%, or €205,000 was for venture grants to build the capacity of the earlystage social enterprises and test their business models.

For the first time NESsT made loan and equity investments in its CEE portfolio. During the period, NESsT made five carefullyscreened investments, representing close to 30% of total financial support, in social enterprises that had been in the portfolio for at least two years. These enterprises demonstrated a high potential for scaling their social impact and for sustainability.

NESsT provided loans to four social enterprises during the twoyear period. Kek Madar and Fruit of Care (Hungary), two social enterprises providing employment to people with intellectual and physical disabilities, received €53,500 in working capital and asset-backed loans to expand their businesses. NESsT also partnered with CoopEst, a loan fund based in Poland, to leverage €120,000 in loans to Alaturi de Voi (Romania), which employs youth infected with HIV/AIDS, and Welldorf (Hungary), a supplier of school materials to Waldorf schools and pre-schools. For these two social enterprises NESsT provided the loan guarantees.

In 2010 NESsT made its first equity investment in Fruit of Care, a nonprofit limited company in Hungary. Since the investment Fruit of Care has experienced significant growth, doubling its sales. It now provides jobs to close to 150 people with intellectual disabilities who produce high-end home decor products. Fruit of Care plans to expand the business regionally.

9% Croatia (2)

13%

39%

Czech Republic (3)

Hungary (8)

Slovakia (1)

35% Romania (9)

4%

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Portfolio Summary & Achievements Exits In 2010-2011 NESsT exited 10 social enterprises from the CEE portfolio using the following exit indicators: financial sustainability, social impact, operational capacity, and NESsT’s capacity to add value.

One of these exits is Vydra, which operates in a very poor region of Slovakia, providing rural tourism services and thereby contributing to the economic revitalization of the area. NESsT invested €100,000 in Vydra in consulting and financial support, which led to a 30% increase in the number of people visiting the region over the past three years. When Vydra entered the NESsT portfolio, it was mainly funded through grants, and the organization is now 57% self-financed from social enterprise activities.

Another exit is Transitions Online (TOL), which provides independent expert analysis and news coverage of Central and Eastern Europe, the Balkans, and the former Soviet Union – regions where independent media are rare and censorship rampant. NESsT provided more than €77,000 in consulting and financial support to turn TOL’s rich content into a social enterprise able to sustain the online magazine and contributing to the overall sustainability of the organization.

For-profit social enterprises With support from Citi Foundation, NESsT launched Business Plan Competitions targeting social enterprises incorporated as for-profit businesses. Nineteen for-profit social enterprises were trained and six received grant investments to launch or expand their businesses. One such enterprise is Csimota, a publisher of high quality progressive children’s books dealing with sensitive social issues such as diversity and tolerance. Eighteen percent of social enterprises in the CEE portfolio are now incorporated as businesses and receive support from NESsT alongside nonprofit-operated social enterprises.

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Fruit of Care—Hungary

NESsT Portfolio Profile

Providing sustainable employment for people with intellectual disabilities.

In Hungary, only one out of ten people living with disabilities is employed, compared with four out of ten in the EU overall. People with disabilities face discrimination and lack jobs skills and training to enter the labor market, preventing them from earning an income to improve their livelihoods.

Fruit of Care promotes sustainable employment for people with disabilities by designing and marketing high quality, designer gift and decor products. The social enterprise supports the employment of 150 people with disabilities in ten ‘sheltered workshops’ – facilities that exclusively employ people with disabilities – across the country. Fruit of Care has brought the message of its social enterprise to over 18,000 customers.

Fruit of Care’s enterprise performance success is reflected in its growth, doubling its income in a year and supplying its products to 19 major international corporations. Within two years of its launch, the social enterprise is close to breaking even, covering 91% of its income through product sales.

NESsT worked closely with Fruit of Care in its efforts to spin-off from a local foundation and become an independent social enterprise. NESsT’s support has also included financial and performance measurement, brand and visual identity, a new corporate marketing strategy, and fundraising and business development support.

NESsT’s Business Advisory Network provided probono expertise for the recruitment of a business manager, sales and public speaking training, strategic planning, and establishing control systems.

150

192%

$100,000

Beneficiaries

Growth Rate of Social Enterprise

Annual Income of Social Enterprise

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RODA—Croatia

NESsT Portfolio Profile

Promoting active parenthood and natural childcare.

The social enterprise also promotes the values of active parenthood and natural childcare through workshops, online educational materials, and its own Baby Eco Fair.

Maternal care practices in Croatia do not fully adhere to the World Health Organization’s standards and intrusive medical procedures cause post-partum complications among women, increasing the costs of healthcare overall. Additionally, as a result of the lack of information about the health benefits of breastfeeding, only about 30% of Croatian mothers breastfeed.

NESsT’s support has strengthened RODA’s capacity in leadership transition, management and human resources planning. Additionally, NESsT helped RODA develop and implement a marketing strategy, optimize supply chain management, introduce a CRM system and develop further opportunities to increase domestic sales and product export.

NESsT’s Business Advisory Network member involvement has included assessing expansion of RODA products to a broader clientele.

RODA’s social enterprise designs, produces and markets a line of trendy and eco-friendly cloth diapers and accessories. The social enterprise goal is to educate the public on the social, environmental, health, and financial benefits of using cloth diapers, as well as the advantages of natural childbirth and breastfeeding.

40,000

52%

$88,000

Beneficiaries

RODA’s Budget from Social Enterprise

Annual Income of Social Enterprise

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Alaturi de Voi—Romania

NESsT Portfolio Profile

Overcoming discrimination towards HIV infected youth.

NESsT evaluated ADV´s business plan, helping the social enterprise to define its target market and identify competitors in this market. NESsT assisted ADV to develop a promotional strategy, including an online retail store and the appropriate product/service mix and pricing for each market segment. Lastly, with NESsT support, ADV assessed its production capacity considering the specific needs of the youth it employs in terms of work schedules and tasks.

Today, more than 9,000 of the roughly 15,000 people living with HIV/AIDS in Romania are youth ages 17 to 21, according to Human Rights Watch. They are often denied access to public education and employment, deprived of health services, and even exiled from their own communities, due to the stigma of the disease.

NESsT’s Business Advisory Network is providing pro-bono support to promote ADV´s holiday and product catalog to corporate clients across Romania.

ADV employs youth infected with HIV/AIDS in a social enterprise that provides business support services, such as photocopying and binding, as well as high quality hand-made products, such as textiles, paintings, glassworks, postcards, agendas, and calendars to meet local market demand.

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600%

$181,000

Economic Opportunities

Growth Rate of Social Enterprise

Annual Income of Social Enterprise

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Promoting Social Enterprise & Private Equity Philanthropy Private Equity Shares promotes social enterprise in CEE as an innovative model that can solve the region’s most pressing social issues. Private Equity Shares also demonstrates the social impact the private equity industry can have in the region through philanthropy and volunteerism.

In 2010-2011, Private Equity Shares was promoted at private equity conferences, NESsT events, and through private equity and venture capital associations in the region.

C5, the industry’s main regional conference, provided speaking opportunities for NESsT at the CEE Private Equity Forum in London. NESsT organized a panel on social enterprise moderated by Joseph Schull of Warburg Pincus, with participation from Roxana Damaschin-Tescu, NESsT Director for Europe, and Aron Jakab, CEO of Fruit of Care, a NESsT Enterprise.

NESsT also partnered with the Hungarian Venture Capital and Private Equity Association (HVCA) and Portfolio.hu to promote Private Equity Shares and social enterprise at the CEE Private Equity and Corporate Finance Conference in Budapest. NESsT hosted Social Enterprise Marketplaces that provided unique opportunities for Private Equity Shares supporters to meet the NESsT portfolio of social enterprises first-hand.

With the support of Citi, NESsT organized Award Ceremonies to award the best-performing social enterprises in CEE, followed by cocktail receptions sponsored by Ernst & Young.

In May 2011, NESsT was invited to present at the South Eastern European Private Equity Association’s conference in Bucharest.

NESsT also hosted its own events across CEE. In 2011 NESsT launched the first Social Enterprise Day to increase awareness of the power and potential of social enterprise. The event was hosted at the Ministry of State for EU Affairs in Hungary, with Minister Eniko Gyori as keynote speaker.

With the generous sponsorship of Squire Sanders, NESsT hosted events in London and Prague for Private Equity Shares supporters. In London, more than 120 supporters were invited to a private reception at the Wallace Collection to learn about NESsT’s work in emerging markets. The keynote speaker was Jerome Booth, Head of Research at Ashmore Group.

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Venture Philanthropy Award NESsT established its Venture Philanthropy Award for Europe (also known as the “Golden Egg Award”) in 2001 to promote excellence in the field of venture philanthropy and to celebrate private equity philanthropy role models in CEE. Since 2004, the award has been presented at C5’s CEE Private Equity Forum in London.

The 2011 award was presented to Thierry Baudon of Mid Europa Partners, for its contribution as an active advisor and donor to NESsT, and as a leader in promoting philanthropy and community giving in the private equity industry throughout CEE.

Leadership Senior Management Loïc Comolli

Roxana Damaschin-Țecu

Lee Davis

Co-CEO (USA)

Enterprise Development Director, Co-Founder & Central & Eastern Europe Chief Innovation Officer (Romania) (USA)

Kerry Dudman

Nicole Etchart

Director of Operations (Chile)

Co-Founder & Co-CEO (Chile)

Gonzalo San Martin

Nelle Sacknoff

Eva Varga

Enterprise Development Director Latin America (Chile)

Director of Communications (USA)

Director of Portfolio Performance (Hungary)

Mónica Vásquez del Solar Country Director (Peru)

Central and Eastern Europe Team Roxana Damaschin-Tecu

Anna Horvath

Enterprise Development Director Central & Eastern Europe (Romania)

Enterprise Development Manager (Hungary)

Despina Iancu

Gabriela Látalová Jirků

Carmen Mezinca

Enterprise Development Associate (Romania)

Enterprise Development Manager (Czech Republic)

Administrative Associate (Romania)

Anca Pol

Andreja Rosandic

Ildiko Szolga

Communications Associate Central & Eastern Europe (Romania)

Enterprise Development Manager (Croatia)

Administrative Associate (Hungary)

Tomáš Tahy

Laura Toth

Eva Varga

Enterprise Development Associate (Slovakia)

Enterprise Development Associate (Hungary)

Portfolio Performance Director Global Portfolio (Hungary)

Peter Varga

Éva Vörös

Enterprise Development Manager (Hungary)

Operations Manager Central & Eastern Europe (Hungary)

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Zoltán Bereczki Enterprise Development Manager (Romania)

Governance International Board Frank van Beuningen

Ernest Boles

Lo誰c Comolli

Managing Partner GreenPartners & Founder PYMWYMIC (Amsterdam)

CEO, Auda Intl.

Managing Director, Harald Quandt Holding (Bad Homburg)

Co-CEO NESsT (San Francisco)

Katherine Downs

Nicole Etchart

Julian Garel-Jones

Principal Investment Officer International Finance Corporation (Washington, D.C.)

Co-Founder & Co-CEO NESsT (Santiago)

Latin America Director Polunin Capital Partners (London)

Nancy Muirhead

Joseph Schull

Richard Surrey

Corporate Secretary Rockefeller Brothers Fund (New York)

Managing Director Warburg Pincus (London)

Founder 1989 Partners (London)

Tulio Vera

David Williams

Chief Investment Strategist & Head Partner of Client Relations Simpson Thacher & Bartlett LLP Bladex Asset Management (New York) (New York)

UK Board Clare Brooks

Lee Davis

Basil Demeroutis

Chief Executive Co-Founder & Chief Innovation Officer Australian Communities Foundation NESsT (Melbourne) (San Francisco)

Partner FORE Partnership (London)

Marisa Drew

Julian Garel-Jones

Joanna James

Managing Director Investment Banking Division Credit Suisse (London)

Latin America Director Polunin Capital Partners (London)

Managing Partner Central and Eastern Europe Advent International (London)

Richard Surrey Founder 1989 Partners (London)

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NESsT in Europe Hungary Bajcsy-Zsilinszky u. 58. 1.em. 6. +(361) 267-0231 Budapest, Hungary Romania Bdul Gen.Dragalina Nr. 7, ap. 14, 300181 +(40) 356711711 Timisoara, Romania Croatia Jurja Neidhardta 4 +(385) 99 818 55 63 Zagreb, Croatia

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