Introduction to Innovative Finance

Adventure Finance: Course Introduction

This consists of a self evaluation that will act as a guide to help build a holistic self-evaluation of your company. The self evaluation helps to identify your company type, resources available, income source and customer base, growth stage, growth projections, embedded mission, impact history, funding required, purpose of funding, collateral, repayment plans and future prospects.

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In this lesson the 5 main stages of the investment process are explored. Most early stage investment comes from Friends, Family and Fools (3 F's). The various stages are explored as well as the most viable sources of funding based on the stages as well as the steps to an investment fund raise.

'Supply chain finance (SCF) refers to a set of financing options for businesses to access working capital by using existing customer orders.'

Global Supply Chain Financing Forum

Supply chain financing is one of the most important ideas in innovative finance and is among the oldest. It allows companies to unlock cash tied up in unpaid invoices, purchase orders, and customer relationships by getting an advance.

• uses contract for goods and services (i.e the promise of future revenue) to underwrite lending
• used for short-term working capital
• for supplying goods and services on a contract basis
• no hidden costs - most use a fixed fee plus interest

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Early payable supply chain financing allows you to access cash early by receiving a discounted payment on your invoice or purchase order. This can help organisations, especially small and medium-sized enterprises (SMEs), access more affordable working capital.

Watch the video below to learn how early payable works for invoice-based versus purchase order-based transactions and see an example of how a large buyer like PepsiCo can leverage its low cost of capital to offer early payment discounts to its suppliers.

The video also includes a case study of a fair trade coffee company that purchases coffee from farmers in Latin America early, providing them with much-needed working capital during planting and harvesting seasons.

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In this module, we will learn about innovative types of catalytic philanthropic capital that blend the properties of grants, debt and equity to support founders’ purpose-driven start-ups, small businesses and non-profit organizations.

Traditionally grants are non-repayable funds, assets or services that grant makers (usually the government, a foundation or a trust) offer recipients (usually a non-profit entity, educational institution, business or an individual) based on a stringent set of criteria and strict restrictions on how the grant can be used. Each of the videos introduce a slight tweak on this traditional view of grant capital and many of the options work for social enterprises structured as for-profits.

It’s also worth noting that while grant funding can be very valuable in the prototyping and start-up phases of social innovation for social enterprises, it isn’t a reliable source of long-term funding for most for-profit businesses. That’s why most businesses that start with any form of grant money should have a strategy to transition away from grant dependence towards diverse revenue and funding streams, including more commercial finance, if they want to thrive.

We’ll be going through:  

Guarantees, which are promises by a third party to cover losses if a borrower cannot repay

Recoverable grants, which are grants that can be converted into loans

Forgivable loans, which are loans that can be converted into grants

Convertible grants which are grants that can be converted into equity

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A guarantee is a promise to repay a debt obligation. This promise is made by a third-party (i.e. not the borrower or the lender). Guarantees allow accessing funding at lower rates and can be either funded or unfunded.

A recoverable grant is the same as a traditional grant in all ways but one. With a recoverable grant, the agreement specifies that all or part of the grant will be repaid to the grantmaker when certain milestones are hit or an event happens.

• repayment terms are customisable, depending on funder/founder needs
• can be used to finance for-profit impact enterprises but are more common for non-profits
• most likely funders are non-profits, foundations, non-profits, family offices, governments, and donor advise funds

Watch the video below to see how recoverable grants can help nonprofits bridge funding gaps, similar to how for-profit organizations use working capital. Establishing a track record of repaying recoverable grants can also build trust and internal systems for interacting with traditional lenders.

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This lesson explores a case study where recoverable grants are utilized. The lesson highlights the case of a reciprocity fund that utilizes grant funding as capital to then lend to social enterprises below market rate and then after a set period pays back the grant less the pro rata share of any lending losses.

This video explores the concept of forgivable loans and how they can be leveraged to support social enterprises and nonprofits in achieving their impact goals. Through a case study of Ikamva Youth, an education nonprofit in South Africa, we delve into the key features of forgivable loans, the distinction from recoverable grants, and the benefits they can provide mission-driven organizations.

By the end of this video, you'll have a deeper understanding of forgivable loans as a flexible financing tool to support sustainable social and environmental change.

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Convertible grants are grants that convert to equity only if certain milestones are reached, such as a funding round or completing certain growth objectives. This allows social enterprises to grow and scale without restrictions associated with traditional grants. An impact enterprise seeking money to fund proof-of-concept activities would be a good candidate for a convertible grant.

Let's explore convertible grants in more detail to understand their unique features, use cases, and benefits. In this video, we'll also be comparing convertible grants and and program-related investments (PRIs) as effective ways to support startups, small businesses, and nonprofits.

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This lesson explores ways of thinking creatively about how we can design community focused approaches to sourcing funding, conducting due diligence, and exiting investments. This will include insights into exploring different crowdfunding models, peer based decision making models, and employee ownership models.

This lesson explores how ownership of a company can be structured to be more equitable. Employee ownership in the forms of Employee Stock Ownership Plans (ESOP's), worker cooperatives and employee owned trusts will be explored.

Impact Linked Finance directly rewards organisations for achieving better outcomes as they scale with the help of investment. This module  explores ways of linking impact to financial performance. Methods covered include cost of capital, funding disbursement, ownership & convertibility.

This lesson explores how funders can tranche investments or grants, that is breaking the disbursement of cash into smaller amounts over a period of time based on factors including financial, social and environmental milestones.

This lesson explores fundraising through Debt, Equity and Grants. It covers the differences and the use cases of each. Equity involving ownership in the organization, and forms of equity funding including priced rounds, convertible notes and SAFE's are introduced. Debt funding involves borrowing money with interest payments. Debt is self liquidating and its suitability is explored in detail. Grants are non-repayable forms of funding and provide capital without the obligations of Debt and equity. Uses and benefits are explored in depth.

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Receivables purchase financing is a method of supply chain financing where a financier provides cash to a supplier in exchange for their purchase orders or invoices.

Watch the video below to explore how Powered by People, a platform that enables artisans in emerging markets to access affordable working capital by factoring their orders.

The financier, in this case Powered by People, enters a three-way agreement with the artisan and the buyer. The financier provides the artisan with upfront cash against their purchase order, and then collects the full payment directly from the buyer.

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Let's understand the key considerations when exploring impact-linked models, such as establishing clear and quantifiable metrics, managing the cost of impact measurement, aligning incentives with the organization's mission, and ensuring additionally.

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