APPROACH AND METHODOLOGY
For each Social Impact Bond, Social Finance will originate the deal, secure government champions, structure and fund the SIB, and manage the SIB over the life of the instrument. Specific tasks include identifying government advocates and savings opportunities; vetting models of intervention; conducting due diligence on nonprofits; performing financial modeling; promoting enabling legislation; securing government contracts; negotiating and executing partnership agreements with nonprofits and the relevant government agencies; articulating financial and social returns; hiring a third-party evaluation firm to design an evaluation plan that will measure outcomes over the instrument's life; raising investment capital and recruiting investors (including foundations, family offices, high net worth individuals, and eventually institutional investors); providing operational oversight of nonprofit service providers; applying course corrections; implementing measurement, data collection, and the evaluation plan; and offering ongoing compliance and investor reporting. Social Finance will raise grants to support its operations.
IMPLEMENTATION, TIMELINE, AND DELIVERABLES
Social Finance anticipates that it will launch its first SIB pilot in Massachusetts in 2012, with additional SIBs following as appropriate. Each SIB will last about six to ten years. Deliverables for each SIB will include the list of nonprofit partners and government champions, SIB financial model, due diligence report, government and nonprofit contracts, enabling legislation, evaluation plan, investment partnership agreement, investor term sheet, capital raised, and partnership work plan.
Social Impact Bonds (SIBs) are a new financial instrument that fund evidence-based prevention and early intervention programs, which often lack access to capital to address social problems at scale. Social entrepreneurs have developed effective solutions targeting the root causes of poverty, crime, and other disabling economic and social conditions; however, many state and local governments are unable to afford even proven programs. Philanthropy, too, is insufficient to bring evidence-based programs to scale. SIBs raise private capital to fund nonprofit programs that improve social outcomes and generate public-sector cost savings, a portion of which are used to finance returns to investors. SIBs benefit all parties: they enable proven nonprofits to scale, generate cost savings for the state, create better outcomes for the individuals served, and provide investors with both financial and social returns.
Social Finance operates as a vertically-integrated intermediary to develop, finance, launch, and manage high-quality SIBs. It is currently exploring SIB opportunities, mainly in the areas of public safety and housing. Potential SIB-funded programs include an alternative community corrections program targeting high-risk 18-24 year olds, supportive housing for chronically homeless individuals, and rapid re-housing of homeless families living in hotels and motels due to shelter overcapacity.
Social Finance, Inc. launched operations in January 2011 with the goal of bringing Social Impact Bonds to the United States. Social Finance leverages the innovative work of its UK-based sister firm, Social Finance, Ltd., which, along with others, pioneered the concept of the Social Impact Bond and offered the world's first SIB in September 2010 to reduce prison recidivism. Social Finance aims to launch its first SIB pilots in Massachusetts, which became the first state to formally pursue SIBs in May 2011 when it issued a Request for Information (RFI) on how SIBs and other performance-based contracts might be applied and structured. Social Finance responded to this RFI and placed its response on its website. It is pursuing other geographies both proactively and opportunistically, targeting promising and potential SIBs, as well as fielding requests for information on SIBs in other U.S. states. The first investors in SIBs will likely be foundations, family offices, and high net worth individuals.
Social Finance seeks investor capital for specific Pay for Success project opportunities. Interested parties are welcome to contact the organization for more information. As a nonprofit organization, Social Finance also seeks operating funds to support its mission of mobilizing capital to drive social progress.
Social Finance has expertise in the Pay for Success (or Social Impact Bond) market. Its sister organization, Social Finance UK, launched the world's first Social Impact Bond in 2010. Since the launch of its US operations in 2011, Social Finance has been deeply engaged in developing the domestic market and advancing Pay for Success as an innovative financing model to help measurably improve the lives of people in need. The firm's Advisory Services, Social Investment, and Active Performance Management teams support all phases of work, tailored to the needs of its partners. Social Finance is focused on developing a strong Pay for Success field through market education, publications, events, research, and analysis.