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Capital Cohabitation Key Terms and Definitions

Capital Cohabitation Key Terms and Definitions

  

Financing Terms

 

Debt: An amount owed to a person or organization for funds borrowed. Debt can be represented by a loan note, bond, mortgage or other form stating repayment terms and, if applicable, interest requirements. These different forms all imply intent to pay back an amount owed by a specific date, which is set forth in the repayment terms.  A company uses various kinds of debt to finance its operations. Private debt comprises bank-loan type obligations, whether senior or mezzanine. Public debt is a general definition covering all financial instruments that are freely tradeable on a public exchange or over the counter, with few if any restrictions.

 

Debt is available in social enterprise capital makets in a variety of forms, from traditional loans through traditional banking institutions, bonds, and investment notes.  Additionally, there have been an increasing number of innovative structures and facilities created to provide fixed-income investment instruments to fund social purposes.

 

Syndicate: 1) Loan syndication is a risk management tool that allows the lead banks underwriting the debt to reduce their risk and free up lending capacity. A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan, usually many millions of dollars. In such a case, a syndicate of banks can each agree to put forward a portion of the principal sum.  A banking syndicate is a group of investors, often a set of investment banks, who have come together in order to function as an underwriting group for a specific project. 2) A group of investors who act together when investing in a company.

 

Equity: At the start of a business, owners put some funding into the business to finance assets. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; after liabilities (eg. debts and other obligations) have been accounted for, the positive remainder is deemed the owner's interest in the business.  Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital employed) is this interest in remaining assets, spread among individual shareholders of common or preferred stock.  Equity typically takes on the following characteristics

  • long-term investment with unrestricted use of resources to facilitate growth
  • owner / partner provided
  • flexible / tailored
  • uncollateralised
  • management support
  • repayment from growth

 

Grants: Grants are funds dispersed by one party (Grant Makers), often a Government Department, Corporation, Foundation or Trust, to a recipient, often (but not always) a non profit entity, educational institution or business. Such application processes, generally require some form of grant writing often referred to as either proposals or submissions. Most grants awarded by foundations and corporate giving programs can be categorized as one of two types:

  •  General purpose or operating support grants: supports the general expenses of operating the organization, not restricted to a specific use
  •  Program development or project support grants: given to support a specific, connected set of activities, with a beginning and an end, explicit objectives and a predetermined cost; there are many kinds of project grants including planning, seed money or start-up, management or technical assistance, facilities and equipment, endowment, program-related investments grants 

 

 

Definitions relating to Philanthropy

 

Philanthropy: In a general sense, philanthropy encompasses any altruistic activity intended to promote good or improve human quality of life. In the United States, the term "philanthropy" is also used to describe the granting of money to nonprofit organizations by foundations and corporations. This type of giving is often referred to as organized philanthropy or grantmaking. 

 

However many individuals, with the advent of technological platforms allowing people to easily link to others who share specific interests, have become strategic players in philanthropy.  There is also a trend in philanthropy of new forms of community giving such as giving circles and women’s foundations where individuals come together to pool their charitable donations and organize their giving. 

Philanthropic giving has traditionally been done in the form of grants, however there are other strategies such as high engagement philanthropy, venture philanthropy and program related investments (PRIs).  Additionally national nonprofit entities that resemble investment banks are forming to create a national marketplace that links foundations and individual donors with top-performing social programs and provides them with multi-million dollar funding rounds and other resources to take the organizations to scale.  

 

Investor Circles:  Also known as giving circles, these are a form of philanthropy whereby individual donors -- often a group of friends -- pool their charitable donations and decide together how to use the money to benefit the causes they care about most.

 

High-Engagement Philanthropy: an approach in which funders or “investors" are directly and personally engaged and involved with their investment partners (in traditional terms, the grantees) beyond providing financial support.  Often this engagement takes the form of strategic assistance, which can include long-term planning, board and executive recruitment, coaching, help in raising capital, assuming board roles, accessing networks, and leveraging relationships to identify additional resources and facilitate partnerships. There are a variety of approaches within high-engagement philanthropy and, as with anything new and different, there remain open questions about its effectiveness and value.

 

Venture Philanthropy: a form of high-engagement philanthropy that takes concepts and techniques from venture capital finance and high technology business management and applies them to achieving philanthropic goals.  Venture philanthropy can encompass the following characteristics:

  • Willingness to experiment and try new approaches
  • Focus on measurable results: donors and grantees assess progress based on mutually determined benchmarks
  • Readiness to shift funds between organizations and goals based on tracking those measurable results
  • Giving financial, intellectual, and human capital
  • Funding on a multi-year basis - typically a minimum of 3 years, on average 5-7 years
  • Focus on capacity building, instead of programs or general operating expenses
  • High involvement by donors with their grantees

 

Program Related Investments (PRIs): Program-related investments (PRIs) are investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organizations or in commercial ventures for charitable purposes. Of the many thousands of grantmaking foundations in the United States, only a few hundred make PRIs. PRIs are often made to organizations with an already established relationship and existing grants with the foundation. A large portion of PRI dollars support affordable housing and community development.  For the recipient, the primary benefit of PRIs is access to capital at lower rates than may otherwise be available. For the funder, the principal benefit is that the repayment or return of equity can be recycled for another charitable purpose. PRIs are valued as a means of leveraging philanthropic dollars.

 

Foundation: A foundation is a nonprofit organization that supports charitable activities in order to serve the common good. Foundations are often created with endowments—money given by individuals, families or corporations. They generally make grants or operate programs with the income earned from investing the endowments.  Some foundations have broad discretion regarding the charitable causes to which their grants can be directed. Others are sharply limited—often legally—by the mandate of the foundation donor. Some foundations are restricted to making grants only to specific causes; others must restrict their grantmaking to a specific geographic area.

 

 

Other Social Capital Market Investment Vehicles

 

Social Venture Capital: please refer to Social Venture Capital wiki page

  

CDFIS:  CDFIs are mission-driven financial institutions that provide financial products and services to people and communities underserved by traditional financial institutions.  There are more than 1,000 CDFIs across the U.S.  They can be banks, credit unions, loan funds, community development corporations, or microenterprise loan funds.  Customer of CFDIs include non-profit organizations, entrepreneurial and or low-income individuals, small-medium sized businesses. CDFIs raise capital from foundations, banks, individuals, government, and corporations. Nationally CDFIs have invested over $17Bn.

 

Social Funds:  similar to a mutual fund, investments from individuals are pooled by professionally managed financial institutions and then invested in pre-screened organizations that support blended value returns;  the organizations in which funds are invested vary according to fund and can be public companies or non-profit organizations; investments can offer a fixed return or a variable return based on fund performance

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