Tokyo Social Ventures : a Venture Philanthropy Model

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Tokyo Social Ventures a Venture Philanthropy
Model
For HKCSS Sharing Session 2 April 2007 Ken Ito,
Director Tokyo Social Ventures
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1. NPOs in Japan and Its Sustainability Issue
1. Non Profit Organizations in Japan
85,000 registered non-profit org. including
schools and hospitals 5 of GDP, 4.6
of total employment NPO Law registered in
1998 25,000 NPOs are registered under NPO
law only 0.2 of GDP 2. NPOs Sustainability
Issue Small private giving market in
Japan 1 of US donation market (US200B in
US vs US181MM in Japan) Weak
organization capability -- Limited access to mgmt
resource No grant tax benefit except
30 government approved NPOs Inability
for bank lending because of lack of collaterals
and credit history 3. NPOs Struggle for
Self-Earned Model Strong needs to be
financial self reliance Difficulty to run a
business social recognition of NPO as a
charity No expertise on business among civil
activists
Strong Needs for Self Earned NPOs - Social
Enterprise
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2. Traditional Japanese Social Enterprises
Co-ops
Traditional Japanese Social Enterprises in
before SE era Co-ops

• Agricultural Co-ops (JA) 50s- JA 832
  member organizations with 5 million members
  Supplying agricultural production materials -
  46 billion sales Japans largest credit
  union with 610B asset size
• Consumer Co-ops 50s- Over 500 member
  organizations with28.4B annual sales
  30 household organization rate with 23 million
  members Strong sense of mission on
  democracy, environment and consumers right
• Workers Collectives as Community Business
  70s- Co-ownership and operation by union
  members estimated 2-3000
  Domestic/nursery services, catering, bakery etc.
• Other Traditional Self-Earned Non-Profits
  - Private schools and hospitals -
  Factories and workshops for handicapped people

Co-ops Innovation Integration of Ownership and
Management
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3. Challenges on Early Social Enterprises

• Performance Productivity - Co-ops
  struggling to increase productivity
• Question from public - Is NPO/Co-op
  products/service really good?
• Competition from Private Sector
  Competition from global economy Made in China
  isnt good enough? CSR effort by
  commercial sector hard to differentiate
  products/services
• Market oriented competitors offer
  variety of products which meets customer needs
• The Way to Innovation
• Does Integration of ownership and
  management can be a good solution?
  Output-based priority is required to determine
  its business model and organizational/operationa
  l structure Social Enterprises are
  required not only Do good but to Do good well

Output Based Evaluation Towards Social Enterprises
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4. New Self-Earned Non-Profit Businesses
(1980s-)

• Green Industry Production and
  distribution of organic foods
• Manufacture and sales of environmental
  friendly products
• Fair-Trade Industry
• Import and sales of products from
  developing countries
• Restaurants and cafes using fair-trade
  ingredients
• Senior Industry
• Senior residence and day-care center
  for elderly people Safety related
  equipment and services
• Tourism
• Eco-tourism Exposure and
  study tour

Start of Era for Innovative Social Enterprises
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5. Japanese SE Best Practice (1) Daichi
Organic Food
Daichi Wo Mamoru Kai (Earth Conservation
Association), 1977- Business Model Producer
and Distributor of Organic Vegetables(Group /
individual retail and wholesale) Annual
Sales(2006) Yen 13B (US 117MM) Membership
2,500 farmers and 72,000 consumer members -
Daichi started from environmental movement in
1975 and they put their idea into practice in
manufacturing and distribution of organic
vegetables.- Daichi is actively promoting
importance of environmental issues and its
solutions
Pioneer in Organic Vegetable Production and
Distribution
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6. Japanese SE Best Practice (2) Peace Boat
Peace Boat, 1983- Business Model Provide
Round the World cruise trip for 3 month
duration with various educational programs and
study visit Annual Sales(Est) Yen 4-7B (US
34-60MM) Program Peace Boat offers 3 month
cruise trip with large passenger ship with 1000
pax capacity. They provides lectures and
educational programs on board and study visit in
20 countries to study on social issues. Cruise
is conducted 4 time a year.Peace Boat has 10
officesin Japan and one in USand they have
partnershipUN organization.
Provide Unusual Learning Opportunities in Round
the World Cruise
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7. Japanese SE Best Practice (3) Safety Service
Center
Anzen Center (Safety Service Center),
1987- Business Model Provide emergency call
system and Daily Call service to call for
elderly people who is living alone. Annual
Sales(2006) Yen 2B (US 18MM) with 55,000
subscribers Service Offered Anzen Center
provides (1) Emergency call for elderly people
(2) Daily call service (3) Mental healthcare
hotline (4) Call center service for
businesses Their client includes
individual,companies and local governments
Support Physical and Mental Health of Elderly
People
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8. Japanese SE Best Practice (4) Fair Trade
Company
Fair Trade Company, 1995- Business Model
Import and Sales of Products from Developing
Countries at Fair Price to Reward Manufacturer in
the Third World Annual Sales(2006) Yen
800MM (US 6MM) Products Cloths, Accessories,
Interiors and Foods from developing
countriesare sold under People Tree brand
through over 400 retails store all over Japan
Shopping with Justice to Support the Life of
Developing Countries
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9. Tokyo Social Ventures a Venture
Philanthropy Model

• Mission
• Tokyo Social Ventures aim to support
  social ventures which provide innovative solution
  to social issues, through provision of financial
  resources and functional management expertise.
  
• SVT also aims to withdraw the evolution of the
  community and increased capability of individuals
  who committed to the social innovation and
  change.
• Goals Objectives(1) To support social
  ventures in finance and management capability by
  utilizing methodology of venture capital(2) To
  educate SVT partners to increase their capability
  and knowledge on philanthropy(3) To conduct
  research on business model of social venture(4)
  To promote information on social venture to
  community

SVT Pursue to Support Social Entrepreneurship
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10. Social Enterprise and Social Entrepreneurship
Social Enterpreneurshipor Social Venture
Social Enterprise
Double Bottomline
Double Bottomline Innovation
Definition
Business Model
Could be Traditional Business
New Business Model
How is important as well as For What
Mission
For What is important
Relation withExisting Market
Create new market
Could be Zero-Sum
Farmers factory Shops which employ handicapped
No typical example
Typical Example
Classification
Employment Integration Empowerment of
Marginalized people
Social Innovation
Social Entrepreneurship -- Source of Social
Innovation
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11. SVTs Objectives Two Outcomes

• Incubation of High Leverage innovative social
  ventures
• - Innovative business model which can leverage
  limited resource - Improved management
  capability of non-profit organization
• - Sustainable value creation to beneficiary
• - Social impact in the community Systemic
  Change
• Personal growth of SVT partners
• - Provide opportunity for personal growth
• - Discovery of self-value through volunteering
  as a professional
• - Self-realization by contribution to a
  solution to a social issue - New lifestyle as a
  engaged philanthropist

SVT focus on High Leverage innovative social
ventures and creation of new lifestyle as
engaged philanthropist
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12. SVT Organization Profile
Name Tokyo Social Ventures Legal Status
Voluntary Partnership Affiliate Relationship
Social Venture Partners from 2006 Year
Founded in 2003 Representative
Hideyuki Inoue, Founder of membership
40 (as of March 2007) Unit Annual Contribution
Yen 100,000 (US 850) Annual Budget US
36,000 of Staff 1 Part time staff of
Investee 5 organizations Average Size of
Investment Yen 900,000 (US8,000) Accumulated
Investment Yen 3,400,000 (US30,000)
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13. Tokyo Social Ventures as a SVP Affiliate

• Tokyo Social Ventures(SVT) joined Social Venture
  Partners(SVP) as the first international
  affiliate in Asia in Oct 2006

• What is Social Venture Partners?
• - A venture philanthropy organization
  started in 1997 in Seattle, Washington
• - 25 affiliate organizations with 1,200
  partners in North America
• - Accumulated investment US19MM in
  over 100 non-profit
• - SVP affiliate share the common mission as
  (1) Educating individuals to be well
  informed, effective, and engaged philanthropists
  (2) Investing time, expertise, and money
  in innovative nonprofits to collaboratively
  strengthen their organizations.

Leverage SVPIs Experience and Know-How on
Venture Philanthropy
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14. SVP Model Comparison with Traditional
Foundations
Tokyo Social Ventures share SVPs venture
philanthropy model to creates systemic social
change by supporting organizational growth of
non-profit and personal growth of SVT partners
through providing the resources which social
ventures are in need of.
Traditional Foundations
SVP / SVT Model

• Provide funding and management expertise
• Mid-long term commitment with exit strategy
• Investment in management capability and
  infrastructure
• Measurement of mission achievement and
  performance
• High commitment
• Share the risk

• Provide funding but not management know-how
• Usually single-year commitment
• Project-based and does not support management
  infrastructure
• Low commitment
• Not output-based. No clear definition of exit
  strategy
• Does not share risks

Multi-year Commitment with Investment in
Organizational Capability
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15. SVT Model How it works
SVT Partners
Social Venture
Tokyo Social Ventures
Social Venture A
Membership Fee
Team A
Funding
Social Venture B
Professional Volunteer
Capacity Building
Team B
Fin. Return
Fin Return
Team C
Social Venture C
Learning Opportunity
Voluntary Partnership

• Grant making cycle once a year to invest in
  innovative non-profit organization
• SVT provide funding to investee organizations
  with a unit of Yen 1,000,000 yen/year with
  minimum 2-3 years of commitment
• SVT also provide capacity building training and
  management support to the investee

Engagement to Investee Provide Funding and
Capacity Building Training
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16. Who are the SVT Partners?

• SVT Partner Profile
• - 38 female, 62 male
• - 84 in their 30s, 10 in 20s, 6 in 40s
• - Professional background - vary

Partner Career Experiences includes Arther
Andersen Mckinsey Co. GE JP Morgan UBS Softbank Ni
fty Watson Wyatt Nikko Asset Management JICA Minis
try of Finance Hakuhodo Mitsui Co. Mitsubishi
Corporation Mitsui Chemical NTT
Facilities SMBC Asahi Shimbun NHK And many other
companies/agencies

• Many of SVT partners have some experience to
  volunteer in a non-profit and desire to do
  something for the community to make a it a better
  place aside from his/her job utilizing their
  professional skills

SVT Partners Diversified Background with Solid
Professional Skills
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17. Investment Cycle - From Application to
Investment
Typical Investment Schedule
Apr
Jan
Feb
Mar
Case of 2006 Investment

• 18 application received
• 6 of them selected to proceed to the final
  presentation
• 3 of them selected as investee (1 under
  evaluation)

SVT Work with Investees to Create Business Plan
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18. Selection Criteria to Evaluate Investee

• SVTs Investment Criteria
• (1) Social Impact
• Significant impact as a solution to a social
  issue
• (2) Innovative and Sustainable Business Model
  Business model which generate income flow to
  support business Replicatable business model
  which enables horizontal scale-out Unique
  business model which bring innovation to the
  society
• (3) Compassion to attract external resource
  Make external resource internal by emphasize
  peoples mind
• (4) Matching with SVTs functional expertise
  Matching is important to make best use of our
  resource Development stage of investee is
  also considered (Start-up or Scale-up)

Identify High Potential Seeds for Social
Innovation
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19. Capacity Assessment and Business Plan
SVPs Capacity Assessment Tool

• Standardilized capacity assessment tool to
  evaluate organizational strength and weakness of
  investee to identify the areas of improvement
• SVT and investees co-work plan is prepared based
  on the result of capacity assessment

Work together to create business plan

• SVT and investee work together to create a
  business plan with financial goal and KPI (Key
  Performance Index) for output measurement
• Example of KPI Number of beneficiaries Number
  of subscribed members Amount of donations
  collected Certification status by the
  government of generated income other than
  subsidization

Financial Target and KPI is Set in the Plan
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20. Investment Cycle - From Investment to Exit
(Take Off)
6 month
1- 3 years
Capacity Building
Application
Invest- ment
Manage-ment Support
Evalua-tion on Perfor-mance
Capacity Assess- ment
Exit (Take Off)



Re-Invest-ment Decision
SVTs Service Menu
1. Strategy 2. Financial Planning / Accounting
3. Fund Revenue Development 4. Organization
Development 5. Board and Governance
6. Information and Technology 7. Performance
Evaluation 8. Business Expansion 9. Publicity 10.
Referral to resource person
Management Support for Enhanced Organizational
Capability
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21. Capacity Building
Examples of Capacity Building Trainings
Area ofImprovement
By Whom
Description of Trainings
(SVT Partner)
Publicity
Journalistin a National Newspaper
How to Write a Effective Press-Release
Workshop to Increase Media Exposure
Fund Raising
Certified Fund Raiser in Gov Aid Agency
Fund Raising Strategy Planning Workshop /
Progress Monitoring and Advise
Financial Planning
Financial Analyst in a Securities Company
Profitability and Pricing Analysis / Annual
Financial Plan Creation
Strategy
Ex-McKinseyVenture Capitalist
Strategy BuildingBusiness Plan Analysis
Accounting Process
Business Process Analyst
Configuration of Package Accounting Software/
Accounting Process Analysis
Capacity Training Utilizing Partners Business
Expertise
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22. Performance Evaluation

• SVT conduct performance evaluation of investee at
  the year-end, based on the financial and
  operational plan which SVT and Investee have
  agreed at the beginning of investment.
  Financials and KPI are major criteria of
  evaluation.
• Financials Monitoring - Does investee have
  progress towards financial independence? - Is
  profitability of investee improving?
• KPI Evaluation - Did KPI meet the target?
  Why if it has not? - Was the rationale of KPI
  resonable? Why if it was not?
• SVTs performance is also evaluated by investee.
• Decision for re-investment is made based on
  evaluation. Continuous poor performance could be
  resulted in discontinue of investment.

SVT Closely Work with Investee to Monitor the
Performance
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23. Initiatives to Fund Non-Profit Organizations
in Japan

• NPO Banks
• NPO banks are the newly established credit unions
  which execute lending towards NPOs, which
  commercial banks does not provide credit.

• 6 NPO banks in Japan (the first one established
  in 1989)- Funding sources majority is
  individuals no guarantee on principle
  Strong desire on good usage of ones savings -
  1-3 annual interest with no collateral
  (10-20 or more in commercial capital market)-
  Average unit lending ranges from US 10,000 to
  100,000- Asset balance ranges US 0.5MM-5MM-
  Some does capacity building support but majority
  does lending- Very low default rate less than
  0.1

Funding Non-Profit Organizations
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24. Initiatives to Support Social
Entrepreneurship in Japan

• Entrepreneurial Training for Innovative
  Community (ETIC, 1993-)

(1) Style social business plan competition
(2002-) (2) NEC Social Entrepreneur School
SES offers start up social enterprise an
opportunity for capacity building and bush up
their business plan with access to the SE
network infrastructure (5 SE s / year, funded
by NEC)(3) Challenge Community Project The
project support local Social Entrepreneur outside
of greater Tokyo Funding up to 7 million / 10
projects a year / Funded by METI

• Social Innovation Japan (SIJ, 2005-)

• - SIJ to create a platform for research,
  education, networking and incubation of
  Social Entrepreneurs
• - Conducted Annual Social Entrepreneur
  Gathering in 2005 and 2006- Led by Dr. Kanji
  Tanimoto, Hitotsubashi Univ.

Creating Community of Social Innovators
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25. SVT Investee Profile (1) Florence

• 1. Florence - Child care service for infants
  with slight sickness
• Year of Establishment 2005, Annual Sales Yen
  30MM
• Business Model Child care services to infants
  who has slight sickness or fever
• Background Nuclear families in metropolitan
  Tokyo has critical needs for such service
  especially in case both of the parents work in a
  full time basis (Only 2 of public nursery
  provide care for infants with sickness)
• Income Source Membership fee costs 50-100 a
  month and a member is eligible for on-call pickup
  of children and nursery service with medical
  consideration
• Whats Innovative about them? To fill the gap
  between government/ privatenursery and real
  needs of young families
• SVT Support Building businessstrategy,
  financial planning, publicity andprovision of IT
  facilities

Helping Working Mothers to Keep Themselves on the
Job
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26. SVT Investee Profile (2) Multi Cultural
Center Tokyo

• 2. Multicultural Center Tokyo - Education and
  Information Service for New Immigrants
  (Established in 1995)
• Business Model Provides tutoring and study
  support to middle school age youth to prepare
  high school entrance exam
• Background Foreign nationals, especially new
  comer encounter issues to adjust their life upon
  immigration. MCT entering to public high school
  is very important gateway to enter Japanese
  society
• Income Source Tuition
• Whats Innovative about them? Focus on middle
  school age youths integrationto Japanese
  society
• SVT Support Organizational development, NPO
  Certification, publicity and marketing.

Support New Immigrants for Integration
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27. SVT Investee Profile (3) Bilingual Deaf
Education Center

• 3. Bilingual Bicultural Educational Center for
  Deaf Children (BBED)
• (Established in 2001, Annual budget Yen 17MM)
• Business Model Schooling for kindergarten and
  primary school age children with hearing impaired
• Background No Deaf school in Japan use sign
  language as a medium in education. BBED is
  established to realize the education by sign
  language, which Deaf children has no handicap to
  communicate with
• Income Source Tuition, Subsidize from
  Government
• Whats Innovative about them? New teaching
  method using sign language as a primary language
  with emphasis on development of learning ability
• SVT support Financial planning, fundraising
  and organization development

Provide Education by Sign Language for Deaf
Children
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28. SVT Investee Profile (4) Madre Bonita
Project

• 4. Madre Bonita (Beautiful Mother) Project
• (Established in 2000, Annual budget Yen 15MM)
• Business Model Provide physical self-care
  program for after-childbirth mothers, which is
  not provided by national healthcare scheme
• Background Medical healthcare is provided to
  infants and pregnant women but postpartum care is
  not provided. Madre Bonita is to fill the gap
  between needs and supply of such public services
• Whats innovative about them?
• Identified postpartum care as a critical part
• Of healthcare issue
• SVTs support
• NPO certification, Business model patent
• registration, Organization development

Addressing Critical Needs for Postpartum
Healthcare for Mothers
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29. SVTs Challenge
SVT is to find solution to these issues for its
organizational growth
(1) Legal Status

• Obtain corporate status with limited liability
  (LLC) which enables SVT to grow in its investment
  size

(2) External Funding

• Seek for sponsorship to increase investment
  volume and to enhance backoffice operation

(3) Develop multiple method to support investee
financially

• SVTs investment is currently in a form of grant
• Include equity investment in scope
• Investigate possibility of lending to support
  mid-stage social enterprises

Develop SVTs Organizational Capabilities
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30. Stage of Social Entrepreneurs
According to the stage of SEs, intermediary org
need to support in different way
Start-Up
Early Stage
Mid Stage
Form of Funding
Grant for Seed Money
Equity Investment
Lending for horizontal scale-up
Funding Volume
Large
Small
Mid
Strategy Accounting IT Fund RaisingPR
Financial Planning PR Org. Development
Franchise Branding Governance HR mgmt
Support in Need

• SVT currently support start-up stage social
  entrepreneurs
• According to the growth of investee, SVT also
  needs to upgrade ourselves for further support

SVT needs to be upgraded to support early-mid
stage SEs
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31. Forming Social Capital Market
In order to establish Social Capital Market we
need to facilitate these components
Fund Provider
Investee
IntermediaryOrganization

• Clear Performance Measurement
• Financial / Non-Financial Disclosure
• Increased Total Market Size

• Legal Status
• Capability for Risk Assessment / Credit Rating
• Expertise to Support Scale-Out-Stage SEs

• Recognition of Social Enterpreneurship
• Integration with CSR Effort
• Win-Win Relation with Core Business

• Social Capital Market make the funds flow from
  market to high performing social ventures
• Fair market competition stimulate the motivation
  for SEs to perform better to attract larger
  size of funding for increase their coverage
  could be a solution for mid-stage SEs

Mobilize Capital Market for Social Innovation
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Thank you very much!
If you are interested to know more about us,
Please contact Ken Ito at Ken.ito_at_sv-tokyo.org