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H O P E C O N S U LT I N G

Money for Good


IMPACT INVESTING
Conversation at the Rockefeller Foundation

May 17, 2010

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Our goals for todays discussion

1. To share what we learned about investor behavior and demand for impact investing, and to answer questions about our findings

2. To offer some tactical recommendation for how organizations offering impact investments could adopt these findings today

3. To discuss ideas for how we can unlock this market and help it reach its full potential

For further information after todays discussion, please contact: Hope Neighbor, Founder, Hope Consulting: hope@hopeconsulting.us 503.789.4808 Greg Ulrich, Project Lead, Money for Good: greg@hopeconsulting.us 415.505.2964
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The Money for Good project

Our goal for the Money for Good project


To understand the preferences, behaviors, and demand for impact investment products and charitable giving opportunities from affluent Americans and to generate ideas for how organizations can use this information to drive more dollars to organizations generating social good

The project addressed four key questions focused on #3 today:


1. How can nonprofits more effectively obtain donations from individuals? 2. How can a greater share of donations go to the highest performing nonprofits? 3. What is the market potential for impact investing and how can it be realized? 4. How can more capital be driven to organizations operating outside the US?
Please refer to the appendix for additional context on the project and its origins M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L NOT FOR DISTRIBUTION 2

Methodology
WHO WE TARGETED
Individuals with household incomes of over $80K. These individuals represent the wealthiest 30% of US HHs, and make 75% of all individual charitable donations We oversampled people with household incomes over $300K, due to these individuals disproportionate share of charitable contributions and investments

HOW WE RESEARCHED
Used 3 sources of information: External research, to understand markets and previous research in the field Qualitative research, consisting of focus groups and interviews with >30 individuals, to test survey language and inform hypotheses Quantitative research, consisting of an online survey of 4,000 individuals, which was the focus of the research

WHY SURVEY IS UNIQUE


Breadth and Depth: survey is unique both in the number of respondents and the amount of information it covered High Net Worth1: half (2000) of the respondents had HH incomes >$300k, making this one of the most robust surveys of high net worth individuals Behavioral Focus: survey investigated behaviors, not simply stated preferences. It also forced individuals to make trade-offs to mirror real life decisions and minimize pro social responses
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1. Used income, not assets given high correlation. Refer to High Income as High Net Worth throughout report M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L

How we defined impact investing


Started with Four Concepts
Investment with a Social Bonus: Focused principally on financial returns, but through opportunities that deal with social / environmental issues Helping People Help Themselves: Microfinance example, targeting low level of financial return Business Solution to a Social Problem: Focused principally on achieving a social benefit but also seeks profit Sustainable Charity: Loan to a charity to help it start a business, targeting low level of return
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Then Provided Common Definition


All of these concepts Allow you to put money towards an opportunity that creates a social or environmental benefit Attempt to return at least the principal invested Offer a return on your money (which varies by opportunity) Are not tax deductible

Agenda

1. The interest and demand for impact investing The interest and demand for impact investing

2. What investors are looking for in impact investing

3. Ideas for how to unlock the potential of this market

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1 . I N T E R E S T A N D D E M A N D F O R I M PA C T I N V E S T I N G

A majority of individuals are open to impact investing

Very Interested 10%

Not at all interested: 13%

~50% are interested 87% have not closed out the idea Even though only 12% have invested before

Interested, Want to Learn More 38%


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Not Yet Sure 40%

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1 . I N T E R E S T A N D D E M A N D F O R I M PA C T I N V E S T I N G

Most investors are interested in small investments, even among the wealthy
85% of respondents would invest less than $10,000; 95% less than $25,000
0% 10% 6% 34% 43% 10% 3% 1% 0.4% 0.3% 20% 30% 40% 50%

Wealthier respondents more willing to invest larger amounts, but majority still prefer $10,000 or less
0% 20% 40% 60% 80% 100%

Less than $100 $100-$999 $1,000-$9,999 $10,000-$24,999 $25,000-$49,999 $50,000-$99,999 $100,000-$249,999 $250,000+

$80-$100k Respondent Income $100-$200k $200-$300k $300-$500k $500-$750K $750k-$1MM $1MM+ Expected Investment <$10,000 $10k-$100k >$100,000
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1 . I N T E R E S T A N D D E M A N D F O R I M PA C T I N V E S T I N G

This leads to a $120 billion opportunity, half of which is for investments less than $25,000

Amount Willing to Invest <$1,000 $1,000 - $10,000 $10,000 - $25,000 $25,000 - $100,000 >$100,000 TOTAL

% of Population 41% 43% 10% 4% 1% 100%

Market Opportunity1 $2B $29B $27B $35B $26B $120B

1. For US population with over $80k in HH income. The market opportunity represents how much individuals are willing to invest today. This is not an annual number
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1 . I N T E R E S T A N D D E M A N D F O R I M PA C T I N V E S T I N G

The opportunity is even greater when people are not first anchored in charitable giving
Respondents who were very interested in impact investing
14% 12% 10% 8% 6% 4% 2% 0%

Amount willing to invest in impact investments ($000/HH)


$18 $16 $14 $12 $10 $8 $6 $4 $2 $0

12% 8%

$16

$9

Charitable Giving Section First

Impact Investing Section First

Charitable Giving Impact Investing Section First Section First

Further, the risk of cannibalizing charitable donations is low. Only 10% said they would use charitable dollars to make investments
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Agenda

1. The interest and demand for impact investing

2. What investors are looking for in impact investing 2. What investors

3. Ideas for how to unlock the potential of this market

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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S

Investors prefer to discover and transact through their financial advisor/broker


Where investors turn to learn about opportunities
Financial Advisor Online Research Website for charities Website for the organization People at the organization People in the investment world Accountant People in the non-profit world Friends and family Website for investments My religious community
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Where investors are willing to transact


27%
Payment mailed to the organization Through current investment firm / FA Though organization's website Through specialized impact investing website Through retirement account Through a different investment firm / FA

12% 10% 10% 9% 7% 7% 7% 5% 4% 2%

50% 45% 34% 20% 18% 9%


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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S

Overall, investors care most about downside risk and addressing a cause they care about
Drivers of Investor Behavior (Relative Importance)
Guarantees my principal back Addresses a cause I care about Has a track record of success Has a business model I believe in Offered by a well-known company Easy to pull my money out Is low risk Defines social impact as I do Serves a region/location I care about Offers a high projected rate of return Is recommended by someone I trust Offers the investment vehicle I want Is broadly available I have personal connection with org
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21% 20% 12% 10% 6% 5% 4% 4% 4% 4% 3% 2% 2% 2%


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Downside risk 5x upside potential Liquidity and return less important because 95% are small investments (return matters for investments >$50k)

2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S

However, we found six discrete segments of impact investors that have different primary motivations
Safety First
I want to know Ill get my money back and maybe some upside. Any social benefits are secondary

Socially Focused
This is a great way to support the causes that are important to me

Quality Organization
Show me a strong business model and a good track record and Ill invest

Hassle Free
If I dont have to look too hard and its a pretty liquid investment, Im willing to try

Personally Recommended
A business school classmate is a social entrepreneur. Im happy to invest in his venture

Skeptic
I keep my charitable giving and financial investments separate. Im not at all interested

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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S

Looking at the top five attributes across the top three segments shows the differences in their primary drivers
Importance of attribute to Key Attributes (Top 5)
Guarantees Principal Back Safety First 56% Socially Focused 3% Quality Organization 6%

Addresses Cause I Care About

3%

50%

7%

Track Record of Success

6%

6%

32%

Solid Business Model / Business Plan

3%

10%

23%

Well Known & Reputable Company

3%

3%

14%

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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S

The top three segments control >80% of the current and future market

% POPULATION

% CURRENT INVESTMENTS

% MARKET OPPORTUNITY

Safety First Socially Focused Quality Organization Hassle Free Personally Rec. Skeptic
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29% 27% 19% 6% 5% 13%

16% 44% 22% 8% 11% 0%

34% 28% 21% 13% 4% 0%

Wary, but $ to invest Early adopters

Invest heavily behind friends

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2 . I N V E S T O R B E H AV I O R S A N D P R E F E R E N C E S

The top barriers all relate to the immaturity of the market, and are consistent across segments
Type of Barrier: Related to this being a new market
60% 50% 40% 30% 20% 10% 0% New Market Investment Considerations Social Good Considerations

55%

52%

50%

49%

47%

40%

39%

38%

37%

37%

33%

30%

24%

19%

14%

Lack of track record

Don't know where to find

"Doing good" means different things

Too risky

Few good options available

Keep charity and investment separate

"Doing good" should be easy

Insufficient ratings / benchmarks

Limited advice availabe

Not enough time to learn about

Hard to measure social impact

Low "feel good" factor

Not as effective at making money

%s refer to the % of respondents that rated each barrier as a 5 or 6 on a 1-6 scale Each segment (other than skeptics) prioritized the same five barriers as being the five most important M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L NOT FOR DISTRIBUTION 16

Not as effective at solving social problems

Don't see advisors recommending

Agenda

1. The interest and demand for impact investing

2. What investors are looking for in impact investing

3. Ideas for how to unlock the potential of this market unlock the potential of this market 3.

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3. UNLOCK THE MARKET POTENTIAL

To unlock the mainstream opportunity from an investor perspective, the market needs to:

Develop products with small initial investments (<$25,000) Tailor by segment, to appeal to different motivations Make opportunities accessible to investors, as many are private Position these as investments, not as alternatives to charity Address newness barriers, to provide confidence to investors Build awareness of these opportunities for investors and their advisors

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3. UNLOCK THE MARKET POTENTIAL

Tactical ideas for organizations offering impact investments


Example Proactively Address Newness Barriers Consider Smaller Investment Amounts Focus on One or Two Segments and Tailor Create Products that Limit Downside Risk Position as Investment, not Alternative to Charity
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Rationale
Each segment has same 5 barriers

Ten years, 100% repayment rate

$1,000 minimum

95% want <$25,000 Move mainstream Different priorities Cant be all things to all people Safety First = 1/3 of total opportunity Vehicles exist More interest Higher investments Dont risk charity
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Clean energy in dev. countries

FDIC insured

Ignia completes closing of Fund I

3. UNLOCK THE MARKET POTENTIAL

Thought starters for how to move the market forward

Field building at a macro-level


Educational materials for donors and advisors Database of opportunities and ratings 2% for impact campaign

Promotion of current opportunities to unlock latent demand


Market existing opportunities that fit investor needs Donor Advised Funds market

Structure new products to appeal to the majority of investors


Products that appeal to Safety First, who have 1/3 of the market opportunity, such as social banks (FDIC insured), loan guarantees, combined ventures Intermediaries to match investors with investments, such as banks, fund of funds, mutual funds

What will it take to open up the market opportunity?


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CONCLUSION

Where we go from here

Work with industry leaders to help unlock this broad opportunity


Define key barriers and develop approaches to address Prioritize opportunities to take the market forward Understand feasibility and economics of potential vehicles and products

Work with organizations that offer or plan to offer impact investments to help them best meet the needs of investors Continue to push forward the research in this field
Understand the vehicles preferred by different segments, particularly due to tradeoffs in transparency and liquidity Test products and the relationship between key factors such as interest rates, downside protection, liquidity, and investment amount
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APPENDIX

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APPENDIX

The Motivation for the Money for Good Project

It is our nature to see the world based on our own context, experiences, and points of view. People in all walks of life struggle with this bias every day. How can a new product fail when you and your cohort believed that it was a great idea? The need to understand the world as it is not as we wish it were has caused primary market research to become a multi-billion dollar industry. The motivation behind the Money for Good project was to seek the voice of the customer for charitable giving and impact investing. This perspective has been lacking in these sectors to date. As the Hewlett Foundation and McKinsey & Company noted in their recent report The Nonprofit Marketplace, there is a need to invest in research that clarifies donors motivations, needs, and decision-making criteria.1 The same holds for investors and impact investing. We have attempted to address that need, and to build a thorough understanding of the behaviors and motivations of Americans with respect to charitable giving and impact investing.
1. The Nonprofit Marketplace: Bridging the Information Gap in Philanthropy, The Hewlett Foundation and McKinsey & Company, 2008 M AY 2 0 1 0 H O P E C O N S U LT I N G C O N F I D E N T I A L NOT FOR DISTRIBUTION 23

APPENDIX

Other Findings from the Project: Increasing Charitable Donations From Individuals
Recommendations To Improve Fundraising at Nonprofits
A. Segment on behaviors, not demographics B. Tag and track your donors by segment B. Donors are generally satisfied with nonprofits, but site being solicited too often as their key area of frustration Few donors do research before they give, but those that do look to the nonprofit itself to provide simple information about efficiency and effectiveness Behaviors matter: there are six discrete segments of donors with different primary reasons for giving Demographics dont matter: HNW donors behave similarly to others C. Determine what segments are best for your organization, given your strengths D. Develop a consistent outbound marketing approach that appeals to target segments E. Prioritize your investments based on what your donors care about F. Capture donors early

Key Findings
A. There is $45B of market opportunity, limited in part by high levels of loyalty in charitable giving

C.

D.

E.

G. Understand how to manage different segments when approached

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APPENDIX

Other Findings from the Project: Increasing Donations to the Highest Performing Nonprofits
Key Findings
A. While donors say they care about nonprofit performance, they dont actively donate to the highest performing nonprofits There are two primary opportunities to close the gap between people who say they value performance, and those who act on it: 1. 2. The Care vs. Act gap The Good vs. Best gap

Recommendations To Increase Funding to High Performing Nonprofits


A. Understand that changing these donor behaviors is a long, uphill road Help high performing organization improve fundraising capabilities Focus on trying to close the Care vs. Act gap: 1. Providing simple information that donors will use, even if imperfect 2. Pushing information to the donors 3. Building broad awareness by selecting a few key messages with which to influence all donors Then, try to close the Good vs. Best gap

B. B.

C.

D.

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APPENDIX

Other Findings from the Project: Supporting Organizations Operating Outside the US
Key Findings
A. A third of respondents either donated or invested in the developing world B. The top drivers for these donations/investments are not international in nature (they are responses to disasters or driven by other motivations) C. International donors and investors are similar to other respondents on most dimensions D. but they are more engaged E. and are more willing to give or invest more funds than they do today F. and this is accentuated for those that give to/ invest in international entrepreneurship A. B. C. D. E.

Recommendations To Increase International Donations/Investments


Overall, focus on recommendations for charitable donations and impact investing Proactively provide additional information to donors on performance and impact For donors, focus on the 30% that already give internationally For investors, focus on the 35% who already invest in the developing world Structure products and marketing to address top barriers to investing in developing countries

G. The barriers to increasing international giving are hard to overcome H. The barriers to increasing international impact investing are focused on risk

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APPENDIX

Project Team

Money for Good has been generously funded by the Metanoia Fund, the Aspen Institute of Development Entrepreneurs (ANDE), the Rockefeller Foundation, and the William and Flora Hewlett Foundation Money for Good ran from Dec 2009 April 2010. The project was led by Hope Consulting (www.hopeconsulting.us), with additional advice and services provided by Clavis Partners, Engage123, CompassX Strategy, and e-rewards For more information on these results, please contact:
Hope Neighbor Founder, Hope Consulting hope@hopeconsulting.us Greg Ulrich Project Lead, Money for Good greg@hopeconsulting.us Julian Millikan Consultant, Money for Good julian@hopeconsulting.us

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APPENDIX

About Hope Consulting

WHAT WE DO Were a general strategy consulting firm that identifies big social sector issues, and develops and executes strategies to address them

WHO WE ARE We are experienced consultants from elite strategy firms, including Marakon Associates and the Boston Consulting Group We engage investment bankers, market researchers, and other specialists to provide targeted expertise on an as-needed basis

HOW WE ARE UNIQUE Deep customer research capabilities to understand what donors, investors, or beneficiaries need to change their behavior Customized staffing model building the best team for your needs Experience working in social sector organizations as well as for them allowing us to develop programs and strategies that work in the sector
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APPENDIX

About the Presenters

HOPE NEIGHBOR,

FOUNDER

GREG ULRICH,

PROJECT MANAGER

Hope is a strategy consultant with extensive experience helping public and private sector orgs increase their impact. Hope has advised a Fortune 50 medical products company on becoming the US market leader in infection prevention, and structured national development programs in Africa. Prior to Hope Consulting, Hope was a strategy consultant with Marakon Associates, a boutique strategy firm serving Fortune 500 clients. At Marakon, Hope worked with senior leadership of publicly traded healthcare, hospitality, and retail companies to define and deliver on their growth strategies. Previously, Hope was a consultant with the World Bank, where she designed and supervised a $270M loan and grant portfolio. Hope was also a field coordinator for the International Rescue Committee in Burundi, and a Peace Corps volunteer in Cameroon. Hope holds a MPA from the Woodrow Wilson School at Princeton University and a BA in Public Policy Analysis from Pomona College, where she graduated with departmental distinction.

Greg brings deep strategy consulting expertise to the Money for Good initiative. As a principal with Marakon Associates, Greg managed the firms West Coast office and led multimillion dollar consulting engagements. Gregs industry experience spans financial services, nonprofits, healthcare, energy, and industrial manufacturing. He has customer research experience, including surveying thousands of customers to understand opportunities for improving a leading healthcare companys products and services. Greg also has deep interest in the social sector. He is the chairman of a Bay Area international foundation, founded a nonprofit foundation focused on children's education, and initiated a social impact consulting practice while at Marakon. Greg holds an MBA with a concentration in Finance from the Wharton School, University of Pennsylvania, where he was a Palmer Scholar, and graduated summa cum laude with a BS in Economics from Duke.

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APPENDIX

Segmentation Methodology

A core element of our research and analysis was developing behavioral segments of donors and investors These segments were developed using gold-standard methodology that is widely used in corporate America. Respondents were first provided with questions that forced them to trade-off different reasons for making donations or investing in impact investments. Engage123, a firm that specializes in this work and has created behavioral segments for numerous Fortune 500 corporations, then ran cluster analyses on these responses to derive the segments We tested many permutations of the segments until we arrived at the smallest number of groupings were donors were similar within a segment, but different across segments

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