Deck 7: Funding Social Ventures

Question 1

The two discrete, traditional sources of funding for social ventures are:

A) Grants and fellowships from the public sector or philanthropists
B) Grants and loans from venture capitalists and crowdfunding
C) Commercial investment and lending from the private sector
D) Grants and fellowships from the public sector or philanthropists and commercial investment and lending from the private sector

Answer 1

D

Question 2

What are the two pillars of crowdfunding?

A) Crowdfunding relies upon a small community and crowdfunders invest or donate small amounts of funds.
B) Crowdfunding relies upon a large community and crowdfunders invest or donate large amounts of funds
C) Crowdfunding relies upon a large community and crowdfunders invest or donate small amounts of funds.
D) Crowdfunding relies upon a small community and crowdfunders invest or donate small amounts of funds.

Answer 2

C

Question 3

Crowdfunders may have different intentions and expectations for different types of crowdfunding campaigns. What is an appropriate example of these intentions and expectations?

A) A personal connection with the cause of the crowdfunding campaign.
B) A return-on-investment from the crowdfunding campaign.
C) A warm glow of giving for the crowdfunding campaign.
D) All of the above given answers.

Answer 3

D

Question 4

How do hybrid structures raise issues of subsidies among the public, philanthropic donors, and private-sector players?

A) Philanthropic donors can just mitigate the risk of commercial investors
B) Philanthropic donors need to advance their charitable goals
C) The sharing of the blended value does not raise issues of public subsidy being captured by private investors
D) Mission-related impact is the goal of a social entrepreneur rather than wealth creation

Question 5

Which of the following questions about the financial drivers of an enterprise cannot direct the social entrepreneur to the appropriate capital sources?

A) What are the earned income opportunities for the enterprise?
B) Is financial sustainability a viable goal given the social or environmental mission of the enterprise?
C) What are the operating inefficiencies to the business plan that can require additional revenue or increase expenses?
D) What assets does the enterprise own or control which could be used as collateral to support debt?

Question 6

Investors who seek to make investments that generate social and environmental value as well as financial returns, use which set of criteria?

A) Risk, return, and equity
B) Risk, return, and image
C) Risk, return, and impact
D) Risk, return, and impulse

Question 7

There are several concerns when a social entrepreneur is trying to find the right match between the venture and investors' goals. Which of the following concerns should be considered?

A) Motivation, issues, evaluation and approaches
B) Motivation, issues, evaluation and personnel
C) Issues, evaluation, personnel and approaches
D) Issues, evaluation, personnel and finances

Question 8

What is another term for the social capital market?

A) The issue investing market
B) The individual investing market
C) The impact investing market
D) The intrinsic investing market

Question 9

Altruism, externalities (e.g., climate change), and information asymmetries all create opportunities for impact investors to make a difference. The opportunities for the field include which of the following?

A) A growing interest among capital providers who seek diversification and a new approach to money management that enables them to also "make a difference"
B) Greater recognition of the need for effective solutions to social and environmental challenges
C) Early successes in the fields of microfinance, community development, and clean tech
D) All of the above are opportunities for the field

Question 10

Financial-first investors are best described as:

A) Commercial investors who search for subsectors that offer market-rate returns
B) A group that uses social or environmental good as a primary objective and may accept a range of returns, from principal to market-rate
C) Investors who are not driven by fiduciary requirements, as in the case of pension plans
D) A group that is able to take a lower than market rate of return in order to seed new investment funds that may be perceived as higher risk

Question 11

Impact-first investors are best described as:

A) Commercial investors who search for subsectors that offer market-rate returns
B) Investors who are driven by fiduciary requirements, as in the case of pension plans
C) Investors who are able to take a lower than market rate of return to seed new investment funds that may be perceived as higher risk
D) Investors who seek to optimize financial returns with a floor for social or environmental impact

Question 12

May investors make both financial-first and impact-first investments?

A) Yes, they may
B) No, they only make financial first investments
C) No, they only make impact-first investments
D) No, they make neither financial-first investment not impact-first investments

Question 13

Social ventures' capital funds are quite restrictive in that they target conventional market rates of return and focus on ___________________________.

A) Industries with inherent social benefits, such as environmental technologies or microfinance
B) A reasonable rate of return within a specified time period
C) Industries with unknown social benefits, such as environmental technologies or microfinance
D) All of the above

Question 14

What is the main difference between behavioral finance and traditional finance?

A) Behavioral finance tells us that both investors and social entrepreneurs deal with the real-world complexity of financial markets by relying on heuristics versus traditional finance that uses models in which people are self-interested and rational
B) Traditional finance tells us that both investors and social entrepreneurs deal with the real-world complexity of financial markets by relying on heuristics versus behavioral finance that uses models in which people are self-interested and rational
C) There is no main difference: both behavioral finance and traditional finance tell us that both investors and social entrepreneurs deal with the real-world complexity of financial markets by relying on heuristics and use models in which people are self-interested and rational
D) There is no main difference: both behavioral finance and traditional finance tell us that both investors and social entrepreneurs deal with the real-world complexity of financial markets by relying on heuristics but neither use models in which people are self-interested and rational

Question 15

Which tool cannot be used by investors to generate impact across their publicly traded as well as private market investments?

A) Active ownership strategies
B) Screening
C) Guarantees
D) All three tools can be used

Question 16

As a long-term owner and fiduciary of holdings in publicly traded securities, an investor has the ability to influence corporate behavior and further her or his impact through which of the following?

A) Proxy voting and shareholder resolutions
B) Proxy voting, shareholder resolutions and informal engagement with corporate management
C) Shareholder resolutions and informal engagement with corporate management
D) Informal engagement with corporate management and proxy voting

Question 17

Who's who in investing and funding? What is a usual difference between angel investors and venture capitalist?

A) Venture capitalists are usually willing to wait a little longer than business angels to reap returns
B) Business angels are usually willing to wait a little longer than venture capitalists to reap returns
C) Nor business angels neither venture capitalist have problems with waiting to reap returns
D) Business angels are usually willing to wait a little shorter than venture capitalists to reap returns

Question 18

Under which condition can corporations be good partners for a social enterprise?

A) Under none condition
B) If the financial goals are aligned
C) If the impact goals are aligned
D) If the communication goals are aligned

Question 19

According to Hope Consulting (2010) which of the following does not accurately describe one of the first three groups of impact investors based on their different priorities and motivations?

A) Those who are "socially focused" and first support the causes that are important to them
B) Those for whom safety is a primary decision criterion so that financial return on investment predominates over social benefits
C) Those who attach a lot of importance to the quality of the organization, e.g., have a strong business model and a good track record
D) Those who personally belong to the social entrepreneur's own social network

Question 20

What is not a typical due diligence question to be asked in relation to impact investments?

A) Does this investment raise reputation or policy issues?
B) How does the impact investment thesis further specific impact goals?
C) Does the transaction leverage other sources of capital?
D) All three question are relevant in this context

Question 21

Because successful impact investing is based on moving beyond a false assumption that social entrepreneurs and investors must choose between social and environmental impact or financial return, both entrepreneurs and investors can benefit from which of the following?

A) Maintaining a limited scope and scale for the philanthropic capital and adhering to fiduciary responsibilities
B) Optimizing for environmental and social impact while avoiding traditional investment management tools
C) Embracing new business models and adhering to recognized financial theory
D) Adhering closely to traditional business models and new financial theory

Question 22

Compared to more traditional capital seekers, social entrepreneurs face an ever expanding set of funding options and the same challenges faced by traditional capital seekers.

Question 23

Social entrepreneurs have traditionally had two discrete investment sources: grants and fellowships from the public sector or philanthropists and commercial investments and lending from the private sector.

Question 24

Crowdfunding has become an alternative to tapping traditional fund-raising mechanisms for social entrepreneurial ventures.

Question 25

Crowdfunders can only be motivated to contribute financial resources to achieve a material reward.

Question 26

Social enterprises tend to use transformative and disruptive forces to create impacts which may accrue to a segment of society or society at large rather than a discrete set of customers.

Question 27

Social entrepreneurs rely solely on market signals and pricing to indicate to potential investors how successful they have been in achieving mission-related impact.

Question 28

On the basis of the financial and impact drivers of a particular social enterprise, a social entrepreneur can determine which forms of investment are the best fits.

Question 29

Impact investing can be defined as investments intended solely to create significant, positive impact on financial return while philanthropy has traditionally focused on gifts made by individuals and organizations to benefit society and the environment.

Question 30

Behavioral finance tells us that investors, social entrepreneurs and traditional finance all deal with the real-world complexity of financial markets by relying on heuristics and models in which people are self-interested and rational.

Question 31

Screening, the practice of buying and selling publicly traded securities based on the evaluation of impact criteria that reflect personal or institutional values, has as its ultimate goal creating a portfolio to reflect the investor's values and mission, mitigate risks, and use investment capital to encourage or discourage specific corporate behaviors.

Question 32

Public and private pension funds, along with insurance companies and other institutional investors, are increasingly seeking to attract capital to underserved urban markets and build assets in low income communities.

Question 33

Angel investors or venture capitalists (VCs) that have a social bent typically want market-rate returns in exchange for their financial support, they are partial to entrepreneurs with plans to do good in the world, but usually they are unwilling to wait a little longer than traditional angels or VCs to reap returns.

Question 34

Corporations support social entrepreneurs through grants from their corporate foundations or through their operating divisions, which may see a social enterprise as an opportunity to innovate or to reach a new market.

Question 35

Equity or equity-like capital forms that are long term and risk-tolerant are examples of new investment forms needed for social enterprises.

Question 36

According to Overholser, the commingling of investments and revenues in standard nonprofit accounting makes it very easy to determine whether takeoff has been achieved and, as a consequence, investors are aware of the outcomes of their investments.

Question 37

The due diligence process for impact investments must consider potential "impact risks" and their mitigation and the mission alignment of the management is crucial.

Question 38

Successful impact investing is based on moving beyond a false assumption that social entrepreneurs and investors must choose between social and environmental impact and financial return.

Question 39

What are the two types of capital that social entrepreneurs have traditionally used to fund their enterprises and how are these sources evolving?

Question 40

Different types of crowdfunders exist that have fundamentally different intentions and expectations for different crowdfunding campaigns. Give examples.

Question 41

List some of the barriers social entrepreneurs face when raising capital which traditional entrepreneurs do not have?

Question 42

Which questions about the financial drivers of an enterprise can direct the social entrepreneur to the appropriate capital sources?

Question 43

Mention the three criteria that investors in social enterprise use?

Question 44

Mention the four concerns when a social entrepreneur is trying to find the right match between the venture and investors' goals.

Question 45

Explain what is meant by impact investing and briefly describe the two most important impact investing categories.

Question 46

Mention another word for the impact investing market.

Question 47

What are the main differences between behavioral finance and traditional finance?

Question 48

Explain the distinct role that each of the following plays in raising capital for social enterprises: financial institutions, corporations and angel investors.

Question 49

Briefly explain what is meant by due diligence and what might be done to assure it is done.

Question 50

Traditional sources of funding for social ventures are grants, fellowships, crowdfunding/online platforms, angels/venture capitalists and loan providers. Describe the advantages and disadvantages of working with these different sources, from the perspective of the social venture.

Question 51

Investors in social enterprises typically use the three criteria: risk, return and impact. What would be a good common denominator for three criteria together, from the perspective of the investor?

Question 52

Crowdfunding often takes the shape of a hybrid decision form in which decision-making is supported by extrinsic cues germane to traditional investments as well as intrinsic cues germane to prosocially motivated acts of helping others to create a social impact of for the pure joy of giving. What is the common denominator of the above mentioned extrinsic cues and intrinsic cues?
The proposition in this essay should be about value creation.