1. Nesta and (Social)Impact Investing
Presentation 26 November 2012

2. • 14 year history of backing
innovation in the UK
• research, programmes, inv
estment, skills
• £300m endowment
• registered
charity, innovation for
public benefit
2

3. What is impact investment?
• An old idea: first building societies c1770
• 2000 – 2010: access to capital for social sector
• Our definition of impact investment is:
“investment with the primary goal of achieving
positive outcomes for individuals, communities or
society as a whole, and with a secondary goal of
achieving financial returns for investors”
© Nesta Investment Management | Nesta Investment
Management LLP is authorised and regulated by the Financial
Services Authority

4. Economically and culturally: we cannot
afford business as usual
Public expenditure needs to
rapidly reduce
Source: UK Budget, 2012
But complex problems will be a
drag on the public sector and the
economy as a whole anyway
Source: Office for Budget Responsibility, 2011
CONFIDENTIAL - NOT FOR DISTRIBUTION

5. State
Social
Sector
Private
Enterprise
Citizen

6. Why does Nesta do work in this area?
• Pressing need for social innovation
• Investment is needed to fund:
– the creation of new social innovations;
– to support their development and testing;
– to scale up those innovations that work.
• Just like other innovation really
• Nesta has been working to build the field….
© Nesta Investment Management | Nesta Investment
Management LLP is authorised and regulated by the Financial
Services Authority

7. Our work in impact investment
© Nesta Investment Management | Nesta Investment
Management LLP is authorised and regulated by the Financial
Services Authority

8. Impact investment is a tool to drive
social innovation, not the goal in itself
• Pressing social issues
• Reorganised public service
markets and changing
terms of trade with state
• Increased use of
technology driving scale
and margins
CONFIDENTIAL - NOT FOR DISTRIBUTION
State
Social
Sector
Private
Enterprise
Citizen
8

9. Feast or famine? Either way, not a balanced diet
9

10. Seeing the impact in impact investing
Output: a measurable
unit of a product or a
defined episode of
service delivery directly
produced by an
investee’s activities.
Impact: the effect on an
outcome that can be attributed
to the output. Impact may be
positive or negative, and
through high quality evaluation
can be quantified.
Outcome: an
observable, and
measurable, change for
an individual or
organisation.
Impact risk: an assessment of
the certainty that an output will
lead to the stated impact. Our
Standards of Evidence are used
to assess impact risk.
CONFIDENTIAL - NOT FOR DISTRIBUTION
10

11. Investing in what works….
Impact Risk
High
Standards of Evidence for Impact Investment
Low
NII1 creates Public
Benefit through its
investment by:
• Delivering impact
• Reducing impact
risk
5
4
Some investments will
underperform
• And growing output
(not shown here)
3
2
We invest in
innovations
We won’t invest here
1
Negative
Neutral
Positive
Impact Potential
CONFIDENTIAL - NOT FOR DISTRIBUTION
11

12. Nesta Impact Investments 1
Type and focus
 Start-up and early growth finance for innovative social
ventures
 Investments in range c£150k - c£1m in any funding round
 Ageing well
Target impact sectors  Learning and employability of children and young people
 Community sustainability
Target size
£25m , first close October 2012 at £17.6m
Fund term
Eight years + extensions
Investment period
Four years
CONFIDENTIAL - NOT FOR DISTRIBUTION
12

13. Nesta Impact Investments:
Investing for Public Benefit in the UK
Outcomefocused
Inclusive
Affordable
Accessible
Sustainable
• We believe it is possible to meet the requirements of programme
related investment whilst investing in a range of entities.
• We do not favour charities over companies or vice versa
• We must see a commitment to each of the criteria above.
CONFIDENTIAL - NOT FOR DISTRIBUTION
13

14. Investment Criteria
• Investing in social ventures:
– whose products or services have a measurable effect on one of
our target outcomes;
– with innovation, and often technology, at the core of their
product or service
– with strong business models able to generate sustainable
returns on capital;
– whose approach is scalable to meet a significant proportion of
the need and demand they address
– with a strong management team capable of delivering on
ambitious plans.
© Nesta Investment Management | Nesta Investment
Management LLP is authorised and regulated by the Financial
Services Authority
14

15. More information
www.nestainvestments.org.uk
© Nesta Investment Management | Nesta Investment
Management LLP is authorised and regulated by the Financial
Services Authority