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LendForGood

The idea

Idea title: LendForGood

One Sentence description: A crowd lending platform to support the growth of small to medium impact enterprises

Addressing topic: Social Procurement Challenge

Team members: Cameron Neil, David Carbines, Tom Dawkins and Paul Howorth from StartSomeGood and Red Hat Impact

Provide an overview of your solution and how it solves the problem along with a short description of your inspiration behind the idea:

The Australian social enterprise sector is like a monster truck jump: big on-ramp (early-stage startup social enterprises), small off-ramp (large social enterprises at scale) and nothing in-between. At the entry level, crowdfunding sites like StartSomeGood are leading to a vibrant market for launches and new ideas. At the upper end we have $100 million impact funds ready to invest who cannot find sufficient deals. The reason for this is the lack of bridges between the two sides to help social enterprises scale.

We think that creating a crowd-lending platform to allow retail/small investors to participate in supporting the acceleration and growth of Impact SMEs through a distributed risk model is a potentially ground-breaking innovation: through a model like this, everyone has the opportunity to become an active impact investor.

Early stage Impact SMEs that are still on their growth and development pathway are finding it difficult to access mainstream shorter-term trade finance. This makes the process of “stepping up” to larger and larger procurement contracts extremely difficult; they simply don’t have the operating capital.

The platform would enable these businesses to access shorter term finance attached to their trading performance, freeing up other cash for working capital. Investors interested in creating impact by supporting the growth and development of Impact SMEs would benefit from a much more efficient line of sight to business they can support by taking low to moderate risk: an easier entry point to impact investing than is currently available.

Larger impact investors that are holding back capital because they are waiting for a pipeline of scaling businesses in which they can take equity, could use this platform to release smaller investments that drive the growth of that pipeline: they can make early stage investments in impact businesses on commercial terms with low to moderate risk.

Describe your solution in detail, providing a high-level business plan addressing how you would implement your solution:

We wish to build and test a crowd-lending platform for providing short term (12 month) trade finance loans to accelerate the growth and development of SMEs that pursue and transparently demonstrate positive economic, social, cultural and / or environmental impact (Impact SMEs) in the Asia-Pacific region

We believe that even with the advent of equity crowdfunding soon there will still be a large gap in the market for a lending platform such as the one proposed. Equity investments require that you have the money to lose, and even when you pick a winner you wouldn’t expect a liquidity event for a number of years. This platform instead will be much lower risk, and much faster repayment (in under 12 months), creating a viable option for anyone with some cash sitting in the bank to both earn a higher return and to directly support the growth of an inspiring social enterprise.

A 'crowd lending for impact' platform fills the obvious gap between crowdfunding and crowd equity by enabling an efficient scaling of this impact SME focussed, crowd-driven, intermediary-facilitated, relationship-based approach to supporting the growth of early stage SMEs - more businesses, more intermediaries, more crowd, more deals, more growth of the sector.Impact SMEs would be able to post their trade finance requirement to the platform, either via a registered intermediary or directly, build around what in effect would be a ‘prospectus’ per finance ask, and the crowd would be invited to subscribe to fund a share of the finance requirement. There would be limits on the maximum size of a financing requirement, and on the amount a member of the crowd could lend to any one deal. Through this capping function, and the prominent role of intermediaries, the platform would enable and manage ‘distributed risk’.

The platform would enable and manage funding transactions and flows (for example, by using an emerging technology like block chain). Impact SMEs would pay back loans to crowd lenders at near-market interest rates. The loan repayment flow would be from the Impact SME back to the platform in line with set and agreed repayment schedules, and from the platform to the crowd lender in a single lump sum (principal and interest) at the end of the loan period. Impact SMEs working with an intermediary would also pay a fee or commission to the intermediaries that support them to raise finance.

We would likely have two types of deals: Intermediary-led (deals rated and brought to the platform by an intermediary like Red Hat Impact) and Entrepreneur-led (deals listed on the platform directly by the company themselves). These would be clearly rated as having different levels of risk, and would likely suit different types of enterprises.

Deals would work on a time-limited all-or-nothing basis, with a minimum and maximum deal size which the raise must fall between, much like StartSomeGood’s system of a Tipping Point and Stretch Goals.

The platform would earn revenue from funds holding and movement and from listing fees paid to it by intermediaries and enterprises for enabling/managing access and for quality assurance (a key focus of the platform’s work would be performing due diligence on intermediaries and individual deals).

Red Hat Impact (an impact business advisory and lending firm) and StartSomeGood (a crowdfunding platform) are working together to bring this crowd lending platform to market, a great combination of finance, social enterprise and platform experience.

StartSomeGood is the operating partner, allowing the new platform to take advantage of existing technical infrastructure and marketing and customer support capabilities, making all functions more reliable and cheaper than building from scratch.As intermediaries are the key user group for the new platform it is being built with Red Hat Impact, a lending intermediary, from day 1.

We are at a stage where our concept is at an advanced level, and we are readying ourselves to move into development. Subject to development timeframes and regulatory matters, we’d aim to launch a beta test version of the platform during the fourth quarter of the 17-18 FY.

We aim to help social enterprises successfully borrow and repay $500,000 in 2018, over $1,250,000 in 2019 and over $2,000,000 in 2020, unblocking the social supply chain by allowing more enterprises to scale past their initial pilots, and to do so in a scalable, sustainable way.

Outline the budget required to achieve the ambition of your idea:

Rather than developing crowdfunding functionality from scratch LendForGood will be built from a mirror of the existing StartSomeGood platform. This allows for a unique frontend look, brand and custom processes, while leveraging the significant investment in StartSomeGood’s platform, which has all the core functionality this new site requires.

Our total go-to-market budget is estimated at $250,000 to cover design, development, launch and the first 18 months operating budget to achieve traction.

We would use the $25,000 to get investment-ready, firming up the business model, developing preliminary designs and accessing support to raise the required amount.

Partnerships are critical for a stronger idea and delivering a solution. Who are the key stakeholders within your idea? Is your solution the result of a collaborative approach? If not, are you looking to bring other partners along:

Red Hat Impact (an impact business advisory firm) and StartSomeGood (a crowdfunding platform) have formed an MOU-based partnership for developing and testing this crowdlending platform. The idea emerged out of conversations between Cameron Neil and Tom Dawkins on how to unlock the potential of the social enterprise sector in Australia by helping great social enterprises scale. Red Hat Impact is already lending to enterprises ready to grow, but we agreed that platform-thinking was required to build the scale to shift the sector. The idea for LendForGood has emerged over several design sessions between the Red Hat Impact and StartSomeGood Team.

To strengthen the likelihood of success, a broad foundation of evidence is critical. What’s the evidence base that points towards your solution being a success? Is your solution addressing an unmet gap in the market:

We have done a number of customer interviews, with a very positive response from every social entrepreneur we’ve spoken to, usually along the lines of “let me know as soon as I can use it.”

The team working on this have a strong experiential knowledge of the challenges facing social enterprises thanks to the vantage afforded us by current and former roles at StartSomeGood (which has helped almost 1,000 social impact projects successfully raise), Hub Australia, The Australian Changemakers Festival, TDi and Fair Trade Australia. We also know a gap exists in financing because it emerges from every analysis of the sector or survey of enterprises in Australia,such as the most recent FASES report from Social Traders.

Globally, the majority of what gets defined as “crowdfunding” is actually lending, a larger volume of funds than equity, donation and pre-sale crowdfunding combined (source: Massolution). Peer-to-Peer (P2P) lending is expected to reach $460,312 million globally by 2022 (Source: Allied Market Research).

But P2P lending hasn’t captured the same market share in Australia as in the US and EU, and there are no local platform focused on social impact and solving the operating capital challenges of social enterprises. This gives us a unique positioning in the market and an incredible opportunity to make a meaningful contribution to closing the gap between promise and reality for social enterprises in Australia. Think Kiva, but for local social enterprises.

Who are the key beneficiaries of your solution:

The key beneficiaries are social enterprises with a strong track record who are ready to grow.

Secondary beneficiaries include new impact investors who have a lower entry-point to the sector, and the wider business and government sector who will ultimately benefit from expanded social procurement options.

Do you have funding partners interested in your idea:

We have had preliminary discussions with several financial institutions who are very interested in this space and our plans, but are not at a stage where we have formally pitched anyone yet.

Describe your most successful experience executing a solution to a problem:

Red Hat Impact have done two beta test deals so far where:*they leveraged a small loan from the crowd (one $7.5k, one $8.5k) to get them going with stock;*in both cases, they've grown and now need/needed more cash for more stock.*the $8.5k loan became a $27.5k second loan to continue their growth;*the $7.5k loan is in process of becoming a $20k second loan.

They have said “We believe we are proving out the hypothesis that a small amount of crowd leveraged investment can give SMEs the jump start they need to grow - and especially to buy stock that their current cash flow doesn't allow them to do, which enables them to trade at a higher level, generate cash flow, and take on larger contracts.”

Meanwhile StartSomeGood has helped almost 1,000 social impact projects to successfully raise the funding they need to make a difference, with the highest project success rate in cause crowdfunding at 53%. This experience of providing coaching and support for online fundraising is highly relevant to the proposed platform.

Optional visual/picture/infographic that demonstrates your idea:

 

Idea Opened: 04:55 PM, Friday 03 November 2017
Idea Closes: 06:00 PM, Friday 03 November 2017
Time to go: Closed

 

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The context

Idea Opened: 04:11 PM, Friday 03 November 2017
Idea Closes: 06:11 PM, Friday 03 November 2017
Time to go: Closed

Do you want to contribute to this idea?

Idea Activity

Idea Activity

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Chris Turner is now contributing to this idea LendForGood

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Chris Turner commented on the idea LendForGood

I am writing as a partner of a business that has received support from Red Hat Impact. Early on, Cameron noted that we probably could easily go on to Prospa or Moula or any of the other fintechs that are called "disruptors" but are all really doing the same thing. No platform asks about our values, our impact, our future plans. They just want to see the accounts. And that didn't sit well with us. We're thrilled to be thriving under the support of Red Hat Impact. The accountability factor is a great motivator. What's better is knowing that we are paying back people who believe in us and what we're doing. And they will probably turn around and invest in someone else after our loan is paid back. There is indeed a gap in this market, and Lend For Good is an excellent way to help fill it. 

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Philippa Friend is now contributing to this idea LendForGood

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Philippa Friend commented on the idea LendForGood

I am commenting from the viewpoint of the everyday person (I am a retiree) with a little money with which to do something  mindful and useful , little or no experience in money-lending and no experience of this field as a business person.   I am attracted and persuaded by  the practical good sense and ethical nature of the points you all make in your presentations and on the strength of that have begun to invest with you.  One aspect however of all presentations I feel could be refined for greater appeal to the "everyday person": how about editing for jargon and doing away with it wherever you possibly can?  Just as a medical  or legal matter can be expressed for the general public in much simpler terms than it generally is, so too can your oratory.  The art of persuasive language is very much a matter of considering who your target audience is and catering for those aptly by choosing the most clear vocabulary, sentence structure and style that you can.  My comment is only relevant to the means you are using to convey your pitch, of course  - the content  I find admirable in all respects and whether or not you win the present contest the worth of this enterprise is obvious to me.

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Cameron Neil is now contributing to this idea LendForGood

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Cameron Neil commented on the idea LendForGood

Hi Geoff thanks for the comment. Also, hi Geoff! Haven't seen you in many years. 

I'd love to understand more re your ideas on utilising philanthropy. 

I've considered the possibility of philanthropic $ to underwrite the loan book - would only need to be small % of what is there assuming > 90% success rates. Such backing could really help the platform grow, give potential crowd lenders more confidence, and likely not cost v much ($ accumulates interest, etc.). At some point it could be exited. 

This idea is in addition to Tom's points. 

Cameron

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Caroline Hirsch is now contributing to this idea LendForGood

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Caroline Hirsch commented on the idea LendForGood

Have just looked up StartSomeGood and Red Hat Impact, and both look like great initiatives. Congratulations on making the final with your new idea!

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Dr. Jodie Goldney is now contributing to this idea LendForGood

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Dr. Jodie Goldney commented on the idea LendForGood

Hi Lend for Good team, just wanted to say congratulations on making it to the next round!  And anything that helps SMEs realise their vision is a good idea in my book! Good luck with the presentation, and in becoming huge!  Cheers Jodie

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Geoff Woolcock is now contributing to this idea LendForGood

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Geoff Woolcock commented on the idea LendForGood

Would be keen to see some more direct links with philanthropy than is evident in your pitch

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David Carbines is now contributing to this idea LendForGood

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David Carbines commented on the idea LendForGood

Thanks for this comment.
Agree that this idea is closer to SEFA for repayable loans, rather than ASSOB for equity.

Our proposed solution centres on working capital and access to manageable overdraft / trade finance solutions. We hypothesise that this finance piece is one of the elements enables emerging impact businesses to scale, or potentially issue larger procurement contracts with the confidence of accompanying finance.

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Challenges Support is now contributing to this idea LendForGood

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Challenges Support commented on the idea LendForGood

Hi Tom Dawkins and team - This comment came in from the research panel -

"might be interesting to think about connections with entities with SEFA, and learnings from groups like ASSOB in the private sector (equity platform). I think the real issue is working capital and access to overdraft loans…and not sure this will work from a crowdfunding platform.  But something worth exploring"

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Matt Perfect is now contributing to this idea LendForGood

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Matt Perfect commented on the idea LendForGood

Thanks Cameron, David, Tom and Paul for sharing this idea. I am a lender on both Ratesetter (for interest) and Kiva (for impact) and I have often wondered why I can't do both on one platform right here in Australia. Now it looks like I will be able to. Good luck!

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Tom Dawkins is now contributing to this idea LendForGood

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Meet the team

Tom Dawkins CEO
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David Carbines
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Contributors

Tom Dawkins CEO
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Matt Perfect Founder and Impact Spender
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Challenges Support Support
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David Carbines
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Geoff Woolcock
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Dr. Jodie Goldney Founding Director
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Caroline Hirsch Venture Capitalist, Impact Investor, Social Enterprise Mentor
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Cameron Neil Co-Founder
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Philippa Friend
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Chris Turner
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