Verge Capital Investing For Social Impact [PDF]

Citation preview

t rP os



W20583



VERGE CAPITAL: INVESTING FOR SOCIAL IMPACT



Sandy Chen, Sarangen Sathasivam, and Andrew Newton wrote this case under the supervision of Diane-Laure Arjaliès solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.



op yo



This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to [email protected]. i1v2e5y5pubs Copyright © 2020, Ivey Business School Foundation



Version: 2020-07-14



tC



It was September 2019, and it had been a particularly long day for the committee from Verge Capital, an impact investing firm based in London, Ontario, whose mission was to help social entrepreneurs from the community. The committee had just reviewed proposals from two social enterprises, Sri Lankan Foods and Material Impact, that were seeking financing to grow. Andre Vashist, Verge Capital’s social finance manager, had to decide which social enterprise should be offered a loan of CA$30,000.1 Traditional banks had generally been unwilling to provide financing to social enterprises, which were usually deemed highrisk ventures. Although both businesses had their strengths, determining whether their respective owners had the expertise needed to sustain the businesses in the long term was challenging. Vashist sat back in his chair and closed his eyes. He knew that deciding which organization Verge Capital should lend money to was significant. He sat up to review his notes on both business plans. SOCIAL ENTERPRISES AND IMPACT INVESTING



No



Social enterprises and impact investing had emerged as innovative ways to tackle societal problems while simultaneously providing a financial return for investors. Social enterprises were businesses that leveraged business strategies and practices to achieve measurable impacts on their triple bottom lines: financial, social, and environmental.2 They could be either non- or for-profit enterprises, and they balanced social impacts with financial sustainability (see Exhibit 1).



Do



While some investments in social enterprises still came in the form of grants and donations, impact investing—where investors sought financial returns as well as social returns inherent in the activities of the financed organization—was becoming a significant source of capital. The ultimate goal of impact investing was to make a meaningful difference in some of the world’s daunting social and environmental problems while generating financial returns (see Exhibit 2). Impact investing had been growing rapidly in Canada, increasing 81 per cent between 2016 and 2018, to over $14.75 billion.3 The challenge for most impact investors was determining how the impact of these investments should be quantified.



1



All dollar amounts are in Canadian dollars. “Criteria,” Pillar Nonprofit Network, accessed May 9, 2020, https://pillarnonprofit.ca/criteria. 3 Responsible Investment Association, 2018 Canadian Impact Investment Trends Report, February 2019, accessed April 22, 2020, www.riacanada.ca/research/2018-impact-trends-report/. 2



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 2



LONDON, ONTARIO, CANADA5



rP os



There were various investment models within the broader category of impact investing—from global to more localized models. For example, a global impact investing model included business support to enterprises that supported and uplifted people at the bottom of the wealth pyramid around the world. Alternatively, a localized, “place-based” impact investing pool provided a means for allocating local investment, which in turn generated positive effects in the community that was home to both investors and the enterprise in which they invested.4



op yo



London, a city in southwestern Ontario with a population of 404,699,6 was halfway between Detroit, Michigan, and Toronto, Ontario. It was known as a regional epicentre for medical research, education, insurance, manufacturing, and information technology and was home to 3M Canada, Goodlife Fitness Centres Inc., Western University, Fanshawe College, London Life Insurance Company, Libro Credit Union Limited, and Labatt Brewing Company Limited. In 2016, London’s unemployment rate was 7.9 per cent, and 9.7 per cent of workers were self-employed.7 The top three occupation categories for Londoners were sales and service (25.6 per cent); business, finance, and administration (14.7 per cent); and education, law, social, community, and government services (13.5 per cent). The city had more than 1,800 non-profit organizations and charities, and 45.3 per cent of its citizens volunteered, contributing more than $600 million in value every year.



tC



Because of the renowned universities and colleges in the city, London was a transient city—a college town that was bustling during the school year but quiet during the summer and winter holidays. Canada’s education system was ranked as one of the best in the world,8 and education was critically important to London’s character. Canada was home to many migrant students, and children of new Canadians integrated quickly into the Canadian school system and performed at the same high level as their classmates. In 2016, one in five people in the London region was foreign born, with the largest numbers coming from Europe, Asia, the Middle East, and Africa.9 As a result, London had a diverse population, with 16 per cent of its inhabitants self-identifying as members of visible minorities and almost half of these people identifying as South Asian, Chinese, Black, or Arab.10 VERGE CAPITAL



Do



No



Based in London, Ontario, Canada, Verge Capital was a place-based impact investing organization created in 2015 to connect aspiring local entrepreneurs with funding to support initiatives with social or environmental missions that benefited local communities. Verge Capital operated a social enterprise loan fund that provided social enterprises with loans up to $100,000. The organization provided access to potential investors and expert business advice to early-stage businesses, specifically those with high growth potential. Its interest rates were lower than those offered by traditional banks, which typically did not lend to these types of businesses because they were considered high risk. Although Verge Capital considered all applicants, its review panel determined which applicants were eligible to be shortlisted for funding according to Verge Capital’s lending process (see Exhibit 3).



4



“Breakthrough Fund,” Verge, accessed April 22, 2020, www.vergecapital.ca/funds/breakthrough-fund. City of London (website), accessed May 9, 2020, www.london.ca. 6 “Census Profile, 2016 Census,” Statistics Canada, November 29, 2017, accessed May 11, 2020, https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/prof/index.cfm?Lang=E. 7 Ibid. 8 Sean Coughlan, “How Canada Became an Education Superpower,” BBC News, August 2, 2017, accessed April 22, 2020, www.bbc.com/news/business-40708421. 9 “Census Profile, 2016 Census,” op cit. 10 Ibid. 5



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 3



rP os



Verge Capital leveraged the support and input of local stakeholders to address two core issues for the community: (1) improving access to capital and (2) building momentum to support the increasing cultural preference for social impact investments (see Exhibit 4). Addressing these two core issues ensured that the Verge Capital portfolio contributed to achieving the United Nations (UN) Sustainable Development Goals— the 17 goals adopted by all UN member states in 2015—which offered common strategies and goals for countries to build peaceful and prosperous futures for both their people and the planet (see Exhibit 5).11 Access to capital was critical to enabling social entrepreneurs to turn their business ideas into reality. It was also essential to continue to build momentum to allow more investors to see the value of impact investing in the communities in which they lived. By leveraging these changes, Verge Capital would be able to make a lasting difference in the community through social impact investing.



op yo



On the investors’ end, Verge Capital worked to enable investors to easily locate, review, and invest in initiatives that provided both financial and social returns. By acting as an intermediary between investors and social entrepreneurs, Verge Capital was building a social finance ecosystem that fostered the growth of local ventures seeking to create social and environmental change. At the same time, Verge Capital engaged with business professionals who could serve as volunteer mentors and coaches, providing them with opportunities to tackle some of the community’s toughest social and environmental challenges. This increased community awareness about the value of impact investing.



tC



Verge Capital had already distributed capital to various social enterprises within the London community. The firm worked with entrepreneurs to provide flexible repayment terms and interest rates. It had provided For the Love of Laundry with a three-year $10,000 loan at 4.7 per cent interest, which required interestonly payments over the first year, providing cash flow to support the establishment of the business during that period. For the Love of Laundry used the proceeds from its sales of environmentally friendly laundry products to support laundry services for low-income individuals. Verge Capital had also provided Old East Village Grocer with a five-year loan of $100,000 at 4.7 per cent. Old East Village Grocer was a not-forprofit grocery store that employed adults with disabilities while offering economically accessible fresh products to impoverished populations. Finally, it had provided Cyber Smart Canada, which taught students about digital safety and technology, with a two-year loan of $12,500 at 4.7 per cent.



No



Verge Capital was not currently generating enough returns from its investments to sustain and grow its operations. The program hoped to refine its mechanisms to make the vetting process for investors easier and provide more substantial financial and social returns. Another goal was to have a team of business consultants who could provide social enterprises with expertise and help them more quickly become ready to work with investors. IMPACT ASSESSMENT METRICS



Do



The biggest challenge for impact investors was measuring and comparing the positive social and environmental effects or impacts of the investments. There were no universally accepted metrics because of variations between sectors and regions. Many social enterprises used their own success metrics to measure impact, which not only made it challenging to compare ventures but also created ambiguity regarding the credibility of the metrics. Furthermore, metrics continuously needed to be adapted based on the stage of each individual investment. Lastly, measuring impact was a costly process that required extensive data collection and analysis. Many social entrepreneurs simply did not have the resources to invest in such activities. 11



“Sustainable Development Goals,” https://sustainabledevelopment.un.org/?menu=1300.



United



Nations,



accessed



April



11,



2020,



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 4



Impact Reporting Investment Standards



rP os



Although no industry standards existed, the Impact Reporting and Investment Standards (IRIS) rating system, implemented by rating agencies such as the Global Impact Investing Rating System, was commonly used (see Exhibit 6). IRIS metrics were typically incorporated into other measurements, including social return on investment (SROI). One weakness of these metrics was that they accounted only for outputs, while investors were more interested in monetization.



Social Return on Investment



op yo



IRIS, created by the Global Impact Investing Network, was widely accepted to provide accurate and reliable impact investing assessments that avoided “impact washing.”12 Verge Capital currently used IRIS.



SROI attributed a financial value to environmental, social, and governance factors that might not typically be considered or reflected under traditional financial statements and valuations. SROI considerations could lead to improved corporate stewardship, planning, and project decisions. Although SROI assigned monetary value to social impact, at its core, its main driver was not financial gain but the positive output from business operations.13 SROI calculations could include outcomes such as improved labour skills for employees; new jobs in economically ignored communities; environmental restoration, which might improve insurance companies’ bottom lines; carbon footprint offset initiatives; and wildlife protection and rehabilitation.14



tC



Verge Capital Investment Decision Matrix



When considering the viability and scalability of a business venture, Verge Capital’s review panel used an investment decision matrix that included the following sections: character, capacity or risk analysis, market conditions, and financial and social impact (see Exhibit 7). Each member of the panel provided a score for each category, and the combined scores were used to assess whether the loan was approved.



No



Assessments of character examined the background profile of the management to ensure that the entrepreneur had the skills or support from advisers to be able to execute the business plan successfully. Assessments of capacity examined whether the operational and legal considerations were realistic. The review panel also completed a risk analysis to determine whether the entrepreneur had conducted an adequate risk analysis of their own and whether there were contingency plans in place.



Do



The panel also reviewed the market conditions to see if the business plan was achievable. It considered competitors and barriers that might prevent the business from being successful. The panel expected that the plan would identify ways to mitigate these threats or convert them into opportunities. The financial review examined whether the capital was adequate for the business. It also studied default risk and reviewed



12



Impact washing was when a company or fund made impact-focused claims in bad faith without truly having any demonstrable positive social or environmental impact. Peter O’Flynn and Grace Lyn Higdon, “Is Participatory Impact Investing the Antidote to ‘Impact Washing’?,” Institute of Development Studies, September 19, 2019, accessed June 15, 2020, www.ids.ac.uk/opinions/is-participatory-impact-investing-the-antidote-to-impact-washing/; IRIS+ (website), accessed April 22, 2020, https://iris.thegiin.org/. 13 Ross Millar and Kelly Hall, “Social Return on Investment (SROI) and Performance Measurement, Public Management Review 15, no. 6 (2013): 923–941. 14 Ibid.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 5



rP os



historical capital usage to see whether Verge Capital should provide further financing. Finally, the panel reviewed the social and environmental impact to see if this was incorporated into the plan in a meaningful way that would address gaps or needs within the community. POTENTIAL INVESTMENTS Sri Lankan Foods



Sri Lankan Foods operated three related businesses: a Sri Lankan restaurant, a catering business, and a granola production facility. There were currently no other Sri Lankan restaurants in the city of London offering food selections like those offered by Sri Lankan Foods.



op yo



Dhriti Tamang, the business owner, was a hands-on operator who worked hard to ensure her business stayed true to its intention to sell authentic Sri Lankan food and healthy meal options. She had over 12 years’ experience working in the restaurant industry in London and had been cooking for more than 23 years, creating Western and Sri Lankan cuisine as well as dishes from many other cultures. Tamang had been operating the first location of Sri Lankan Foods since November 2008 and was interested in adding a social impact element to the business. She wanted to provide opportunities for newcomers who had been in Canada for less than five years and were not proficient in English. She would offer these people employment for periods of six to 12 months. The business would pay these employees minimum wage during this time. While Tamang had connections with members of the Sri Lankan community who could work at her establishment, she had neither experience in executing a social impact strategy nor experience in running a large business. Currently, she had one permanent employee, who assisted with administration.



No



Material Impact



tC



The restaurant, in a busy marketplace in the heart of downtown London, was open to customers only on Saturdays. During the week, the space was used for granola production. The total available space was relatively small (about 14 square metres) and did not provide adequate space for serving customers. The funds would be used to retrofit a new location in London that would function as a restaurant and a distribution outlet for the granola. The newly opened site would have more room to serve customers (about 63 square metres). The business had requested $30,000 from Verge Capital; the owner would provide an additional $20,000 for a total capital investment of $50,000 (see Exhibit 8).



Do



In 2011, Paulina Moran started to collect used textbooks from her classmates at Western University’s Ivey Business School in London and to resell the books to raise funds for the Canadian Cancer Society. Shortly after, when Moran was teaching in Chile and Guyana, she realized the students did not have access to the educational resources that were essential for academic success. She applied her previous program of selling used textbooks to raise funds to address the social need for improving South American students’ access to academic resources; thus, Material Impact was born. Material Impact collected used textbooks and case study books from students on campuses and from Goodwill and Red Cross donation centres. It then sold 30 per cent of the books through Amazon.com Inc. (Amazon) and donated 60 per cent of the books to South American universities and the remaining 10 per cent to other non-profits. The books were sorted based on their condition and market value. The textbooks sent to South American universities had to have been published within the past 10 years and be in good condition. The books that did not meet the criteria for either online sales or donations to South America were sent for recycling.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 6



rP os



The organization leveraged a partnership with the southwestern Ontario organization Recycle with Purpose to pick up textbooks in the Greater Toronto Area. To move beyond southern Ontario, Material Impact would need to find a national partner that could help grow the organization’s reach. Material Impact shipped books out of Burlington, Ontario, completing 80–85 per cent of its sales through Amazon by using the Fulfillment by Amazon service. This reduced the need to invest in warehousing and inventory storage facilities. Its books were listed online at a minimum value of $7.50. The organization was able to provide competitive pricing to consumers by utilizing software that checked comparable listings every 25 minutes. It was considering expanding into renting textbooks to students and using third-party logistics companies to handle international sales.



op yo



Material Impact had no existing direct competitor in the Canadian marketplace with a similar social impact. Its closest competitor was the US-based company Reading with Purpose. Like Material Impact, this organization collected textbooks and novels that had been donated to non-profit organizations, and any books that the organization did not sell were donated to Books for Africa. A percentage of Reading with Purpose’s profits was donated to literacy causes. In its first year of operations, Material Impact, which was located on 12 campuses across Ontario and worked with three different Goodwill and Red Cross partners, had collected 55,000 textbooks and generated revenues of $260,000. The business had donated 40,000 textbooks to two South American universities and $30,000 to student-led impact initiatives, invested $39,000 in microfinance loans, and reused and recycled 50,000 textbooks. The organization directed 60 per cent of the revenue from textbook sales toward textbook or monetary donations to a student-led charity.



tC



The organization was seeking $50,000 in debt financing from Verge Capital as well as additional funding from other sources to help finance their ambitious goals of making a positive impact. These funds would go toward recruiting staff for the core leadership team, developing logistic systems for use across the province, managing two warehouse operations, and recruiting essential warehouse employees. The team had achieved impressive growth in its first years of operations. However, the Verge Capital review panel was concerned about its sustainability and the feasibility of its aggressive future growth targets and annual objectives (see Exhibits 9 and 10).



No



DECISIONS FOR VERGE CAPITAL



Vashist knew that both business models aligned with Verge Capital’s mandate. However, he needed to choose just one. How sustainable were these businesses, given current market conditions? Were there more comprehensive criteria that Verge Capital should consider before investing? Could the company invest in both businesses, ensuring that its financial portfolio was diversified to protect from loan failures?



Do



Furthermore, Verge Capital was facing questions about its own growth. Should social entrepreneurs be paying for the consulting services Verge Capital was providing? If so, how much should the social entrepreneurs be paying? On a macro level, could private, profit-motivated investments deliver permanent social change?



Ivey Business School gratefully acknowledges the generous support of the CPA-Ivey Centre for Accounting & the Public Interest in the development of this case.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 7



rP os



EXHIBIT 1: SOCIAL IMPACT AND FINANCIAL SUSTAINABILITY MATRIX



Low



op yo



Social Impact



High



Low High



Financial Sustainability



Source: Created by the case authors.



EXHIBIT 2: IMPACT INVESTING ECOSYSTEM AND MARKET SEGMENTS Supply



Products



Channels for matching capital with investment opportunities



tC



Investment providers, with terms



Intermediaries



Means of matching supply with demand



Demand Investment seekers, with unique purposes



Impact Measurements



What impact is created?



Government Engagement



No



How can government enable the marketplace? Leadership



Who is providing leadership to the nascent field?



Source: Source: Created by the case authors.



EXHIBIT 3: VERGE CAPITAL’S LENDING PROCESS



Do



Step 1: Inquire Enterprise submits an expression of interest to Verge Capital.



Step 2: Meet Enterprise personnel meet with Verge Capital staff to explore fit and expectations.



Step 3: Apply Selected enterprises apply, with Verge Capital coaching.



Step 4: Pitch Selected enterprises are invited to pitch to the review panel.



Step 5: Finance Approved enterprises receive capital and ongoing support.



Step 6: Report Enterprises report on social and financial results.



Source: Adapted by the case authors from “How It Works,” Verge Capital, accessed May 9, 2020, https://vergecapital.ca/funds.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 8



Lina Bowden, lead volunteer consultant Andre Vashist, social finance manager



rP os



EXHIBIT 4: PARTNERS AND COMMUNITY STAKEHOLDERS ENGAGED WITH VERGE CAPITAL



Lead/Governing Group  Pillar Nonprofit Network (program manager and backbone organization)  London Community Foundation  United Way Elgin Middlesex  Sisters of St. Joseph  Libro Credit Union



tC



op yo



Supporters and Engaged Community Organizations and Individuals  London Small Business Centre  Ivey Business School  Emerging Leaders  Business Help Centre/Community Futures Development Corporation of Middlesex County  City of London  Westminster College Foundation  Good Foundation Inc.  Westany Holdings  Pathways Skills Development  Johnny Fansher Financial  Jens Stickling  Goodwill Industries  The Old East Village Business Improvement Area  Habitat for Humanity  Devonshire Financial (London) Inc.



No



Funders  Pillar Nonprofit Network (in kind)  United Way Elgin Middlesex  Sisters of St. Joseph  London Community Foundation  Libro Credit Union (in-kind administration and 25 per cent investment in each approved loan)  Ursuline Sisters of Chatham  Government of Ontario, Ministry of Economic Development, Employment and Infrastructure  Lina Bowden and Lynn Davis (Material Impact investors)



Do



Source: Compiled by the case authors based on data from Verge Capital (website), accessed May 9, 2020, https://vergecapital.ca.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 9



No Poverty Zero Hunger Good Health and Well-Being Quality Education Gender Equality Clean Water and Sanitation Affordable and Clean Energy Decent Work and Economic Growth Industry, Innovation, and Infrastructure Reduced Inequalities Sustainable Cities and Communities Responsible Consumption and Production Climate Action Life below Water Life on Land Peace, Justice, and Strong Institutions Partners for the Goal



op yo



                



rP os



EXHIBIT 5: THE 17 UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS



Source: Compiled by the case authors from “Sustainable Development Goals,” United Nations, accessed April 11, 2020, https://sustainabledevelopment.un.org/?menu=1300.



EXHIBIT 6: GLOBAL IMPACT INVESTING RATING SYSTEM RATINGS INPUTS The Global Impact Investing Rating System is an agency that reviews the following topics when rating a company’s impact, assigning weightings for each topic as noted below. The total points are added up to a maximum of 200 points. Governance (7.5%) Workers (25.0%) Community (27.5%) Environment (10.0%) Socially and Environmentally Focused Business Models (30.0%)



tC



    



No



Source: Adapted by the case authors from “Company Ratings Methodology,” B Analytics, accessed June 15, 2020, https://banalytics.net/articles/company-ratings-methodology.



Do



EXHIBIT 7: INVESTMENT DECISION MATRIX USED BY VERGE CAPITAL



Section Character (Management Profile) Capacity (Business Plan Summary) Conditions (Risk Analysis/Market Overview) Capital (Financial Overview) Impact (Social/Environmental) The Ask Total Score:



Score /13 /20 /14



Minimum (50%) = 50/100 Average (70%) = 70/100 Above Average (80%) = 80/100



/13 /35 /5 /100



Source: Created by the case authors.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 10



rP os



EXHIBIT 8: SRI LANKAN FOODS Envisioned Use of Funds (CA$) Item Kitchen Equipment Customer Seating Furniture Electrical and Plumbing Work Miscellaneous Work Total



Cost 39,300 2,500 6,000 2,200 50,000



Sri Lankan Foods Income Statement (CA$)



Revenue Catering Food Sales (Market) Food Sales (New Location) Total Restaurant Sales



2018



2019



2020 (Projected)



op yo



2017



2021 (Projected)



13,096



20,738



26,192



26,192



26,192



97,927



82,713



71,856



71,856



71,856



…



101,190



273,600



328,500



328,500



111,023



204,641



371,648



426,548



426,548



25,730



25,730



38,595



51,460



64,325



25,730



44,095



57,200



57,200



57,200



51,460



69,824



95,795



108,660



121,525



162,483



274,466



467,443



535,208



548,073



Restaurant COGS



48,274



89,402



163,785



188,459



188,459



Granola Costs Administrative Expenses Total Expenses



50,326



51,705



69,361



79,240



89,119



60,936



155,031



221,789



221,789



215,687



159,537



296,138



454,935



489,488



493,265



2,946



(21,673)



12,508



45,720



54,807



tC



Granola (Wholesale) Granola (Retail)



Total Granola Sales



No



Total Revenue



Net Income/(Loss)



Do



Note: COGS = cost of goods sold. Source: Created by the case authors.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 11



rP os



EXHIBIT 9: MATERIAL IMPACT—FINANCIAL AND OPERATIONAL GOALS



2020 Goals  Sales target: $1.2 million.  Number of textbooks collected: 250,000.  Textbook donations: 120,000.  Expand to every major school in Ontario; have a total of 200 drop boxes.  Review renting/selling textbooks through multiple platforms in the US market.  Review selling e-textbooks on website.  Donate tablets to students in South America.  Create a sharing platform to enable students to share notes with students in developing countries.



op yo



2021 Goals  Sales target: $3.6 million.  Number of textbooks collected: 750,000.  Textbook donations: 360,000.  Expand into the United States; set up two to three regional US hubs.  Monetize content-sharing platform.  Target 20,000–30,000 digital notes from North American students.



tC



2022 Goals  Sales target: $11.6 million.  Number of textbooks collected: 2,225,000.  Textbook donations: 1,080,000.  Become the leading social impact provider of affordable physical and digital educational material for students around the world.  Develop a top-quality international team while developing Canada’s social impact and start-up environment.  Achieve sustainability of the content-sharing platform.  Target 100,000 digital notes from North American students.



Do



No



Note: All dollar amounts are in Canadian dollars. Source: Created by the case authors.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860



9B20M135



t



Page 12



Textbook Revenue Marketplace and Shipping Fees Gross Profit Collection Partner Payments Advertising and Promotion



2023



105,466 2,500 5,000 35,000 147,966



388,592 7,500 15,000 75,000 486,092



1,165,777 15,000 30,000 150,000 1,360,777



2,331,554 30,000 60,000 300,000 2,721,554



4,663,107 60,000 120,000 600,000 5,443,107



2,000 196,250



6,000 182,500



12,000 168,750



24,000 155,000



48,000 105,000



50,284



297,592



1,180,027



2,542,554



5,290,107



2,721,554



5,443,107



2023 15,566,217



2024 31,132,433



147,966



No



Do



London Lenders (15,000) Lisa & Quinn (40,000) Lisa & Quinn (50,000) LSY Investment Fund (50,000) Verge Capital (50,000) Total Interest Expense



486,092



1,360,777



Five-Year Projected Income Statement 2020 2021 2022 1,203,258 3,891,554 7,783,108



2024



452,591



1,453,947



2,907,895



5,815,789



11,631,579



750,667



2,437,607



4,875,214



9,750,427



19,500,855



77,280



151,020



302,039



604,079



1,208,158



52,850



132,300



396,900



1,190,700



3,572,100



510,413 29,200 63,360 25,600



1,346,971 53,400 117,100 129,600



2,424,548 80,100 210,780 259,200



4,364,187 120,150 379,404 518,400



7,855,536 180,225 682,927 1,036,800



18,000



31,600



56,880



102,384



184,291



12,000



37,350



93,375



233,438



583,594



18,000



37,600



75,200



150,400



300,800



806,703



2,036,941



3,899,022



7,663,141



15,604,431



56,036 17,349 38,687 9,208 0 47,895



400,666 0 400,666 13,463 58,080 329,123



976,191 0 976,191 13,238 144,443 818,510



2,087,287 0 2,087,287 13,013 311,141 1,763,133



3,896,424 0 3,896,424 11,100 582,799 3,302,526



tC



Salaries and Wages Vehicle Operating Costs Rent Freight Office and Warehouse Supplies Administrative and Professional Fees Miscellaneous Total Operating Expenses Net Ordinary Income Other Income EBIT Interest Expense Tax Expense Net Income



Five-Year Projected Balance Sheet 2020 2021 2022



op yo



Assets Cash and Equivalents Accounts Receivable Furniture and Equipment Vehicles Total Assets Liabilities Accounts Payable Loans Outstanding Equity Owners' Equity Total Liabilities and Equity



rP os



EXHIBIT 10: MATERIAL IMPACT—FINANCIAL AND OPERATIONAL SUPPORTING DOCUMENTS (CA$)



2020



Loan Interest Schedule 2021 2022



2023



2024



788



563



338



113



0



2,400 1,875



2,400 3,000



2,400 3,000



2,400 3,000



600 3,000



2,700



5,000



5,000



5,000



5,000



1,445 9,208



2,500 13,463



2,500 13,238



2,500 13,013



2,500 11,100



Note: EBIT = earnings before interest and taxes; London Lenders, Lisa & Quinn, and LSY Investment Fund = organizations and investors who are also seeking to invest in Material Impact to finance their growth plans. Source: Created by case authors.



This document is authorized for educator review use only by Aparna Hawaldar, Christ Institute of Management until Oct 2023. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860