List all the funding sources that are required for the sustainability of this solution
Private investors: high net worth families seeking to satisfy their social concerns in an efficient, professional and informed manner.
Foundations: They can invest in social projects in sectors where they have no experience of the FIS through specialization in the management of social institutions. Moreover, by investing in the FIS, a foundation access information about best practices in the marketplace, generating the possibility of generating sectoral comparisons for which the foundations can assess their own management.
Development agencies, national (CORFO) and international (IDB, MIF): The ability to access funds from development agencies allow the FIS to enhance the contribution of private investors, generating greater social impact and lower costs of administration.
Initiatives of Social Responsibility (CSR) from private companies: The FIS is an efficient and professional way to outsource certain CSR needs without incurring the costs of time, planning and management typically entail.
Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?
The FIS is a proposal that does not depend on funding from the government. On the contrary, all contributions pledged so far come only from high net worth private investors. This validates the idea that there FIS interest from private investors to channel contributions to enterprises and social institutions that generate high social impact through an investment fund managed with high standards of accountability and transparency, and managed by professionals. In this sense we can say that the sustainability of the business model of the FIS is determined by its ability to generate financial returns for its investors contributors to invest in companies and social institutions that generate low risk and high social impact.
Public funding could enhance the consolidation of this model and its expansion both domestically and internationally. Leveraging private capital contributions from public development agencies would significantly increase the financial scale and social impact of funds such as the FIS, increasing confidence in the success of private industry, promoting the arrival of foreign capital and accelerating the consolidation of the industry both in Chile and Latin America. In this sense, the future development of an industry of specialized financial intermediaries, and the consequent strengthening of a market for companies that deliver solutions aimed at the base of the pyramid in Latin America depend largely on the effort they put governments and agencies unlock development, leverage and implement regulatory changes to encourage the inflow of capital from high net worth private investors in this development.
Demonstrate how your proposed solution will survive a potential loss of its largest private funding source
The FIS seeks to raise a capital of U.S. $ 4 - 5 million, mostly from private investors, with high net worth, who have already committed contributions of U.S. $ 3 million. These amounts involved are composed of contributions that are generally between $ 100-200000 per investor, there is not yet any contribution that because of its size can be considered as essential for the viability of the Fund and which might endanger the future FIS in case it was canceled.
Note that the input entered into the FIS can not be rescued before the settlement date of the Fund. The FIS financed projects are generally long term and illiquid capital intensive, not a secondary market exists that allows exit of an investment before the agreed time. This is the reason that the FIS has no exit windows, as a rule, for its investors contributors, these may recover their investment only at the end of the 10 year term of the Fund. Until two years before the liquidation of the Fund, all claims placed to be charged again be reinvested in social projects. Notwithstanding the foregoing, the Fund distributes annually as a dividend, at least 30% of net profits earned during the period, in accordance with the financial statements, except where otherwise adopted by the unanimous vote of the issued shares with voting rights.
Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation
Financial standpoint: we believe that the existence of partnerships with national agencies (CORFO) & international (IDB, MIF) is an essential factor for the success of a project w/ the characteristics of the FIS. Whether through the direct input of capital, or indirect via debt or quasi equity, the potential size of the first social investment fund in Chile can achieve is determined in large part by the support and credibility that will deliver development agencies.
Operational: the FIS has already signed partnerships w/ numerous institutions w/ broad relevance in the Chilean financial & social sector. Thus, the project has participation from the beginning of the Center for Public Policy at the Catholic University, the Innovation Forum (local think tank that promotes entrepreneurship&innovation), the Social Observatory of the University Alberto Hurtado (measurement experts social impact), AVINA, TechnoServe (NGOs worldwide leader in economic development of rural communities) & the Corporation Simon de Cirene (local experts in management of social institutions). & Barros & Errazuriz law firm through a contract Probono, & NEVASA Larrain Vial & who is acting as distributors of Fund.
Are there non-financial issues that could threaten the sustainability of your proposed solution?
1) Lack of support from national and international agencies in the long term
The various international experiences are unanimous in stressing the importance that they have the national development agencies and international and major international foundations in the momentum necessary to develop the industry of social investment funds in a country. Whether investing capital in the funds or providing access to networks of investors, there are numerous examples of social investment funds whose success has depended largely on the support received at the beginning of a financial institution. Examples are U.S. Acumen Fund, which began with contributions from Rockefeller Foundation, and Ignia in Mexico that has received significant contributions MIF / IDB in its development.
Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically
The FIS is a first mutual fund that seeks with its success to demonstrate the feasibility of using financial intermediaries, especially private investment funds, to channel capital from private investors towards companies and social institutions that generate high social impact and have potential for financial self-sustainability . As the first fund that is, the FIS has a target size relatively small ($ 5 million), may invest in various sectors like education, microfinance, environment, housing and health. Depending on the success of the FIS, and using all the experience it gained in the short-term goal it is to create social investment funds specializing in specific areas where such demand exists to justify this. It is planned, for example, a fund specializing in education, one that specializes in high environmental impact projects, one in social housing, etc.. These funds could be larger in size than the FIS, which may include financial and investment conditions different, to make more efficient the collection of social impact as the specific type of investment involved.
Another short-term objectives of the FIS, which depend on the success of the project, designing and building the necessary infrastructure for industrial development of social investment funds. Whether through the development of financial standards and measurement of social outcomes, as well as carrying out an extensive lobbying program to promote regulatory changes that benefit the contributors in this market investors, or even creating networks that allow investors accelerate the growth of industry, FIS is an important part of the responsibility to initiate the necessary steps to promote the improvement and consolidation of social fund industry in Chile.
In the medium term, there is the belief that this model should be exported to other Latin American countries, starting with the neighboring countries of Chile. Both Peru, Argentina and Bolivia, we have considerable potential to develop social enterprises and institutions operating at the base of the pyramid selling products or services which carry a positive social impact for consumers while generating financial returns it. Whether through country-specific funds, or by covering first fund companies and social institutions of various countries, the objective is to replicate the model of the FIS in other Latin American countries.