Underwriting Pay for Success
Investments
February 2nd, 2016
Welcome
Introductions
LISC Current
is a national nonprofit
intermediary
that provides financial and technical assistance to
Portfolio
Overview
community-based organizations, public agencies and private nonprofit and for-profit entities
focused on the redevelopment of urban neighborhoods and rural communities. The
organization works through 30 local offices in urban sites and a national rural program
which operates in 43 states.
Presenters: Malini Nayar
Nonprofit Finance Fund (NFF) unlocks the potential of mission-driven organizations through
tailored investments, strategic advice and accessible insights. NFF's work in PFS has
focused on helping service providers, investors, and governments understand and build
readiness for productive participation in transactions tied to meaningful and measurable
outcomes.
Presenters: David Streim
The Reinvestment Fund (TRF) is catalyst for change in low-income communities by
integrating data, policy and strategic investments to improve the quality of life in low-income
neighborhoods. TRF brings together individual investors, banks, government officials,
private foundations and faith-based and community organizations to invest in projects that
transform communities.
Presenters: Andy Rachlin
Third Sector leads governments, high-performing nonprofits, and private funders in building
evidence-based initiatives that address society’s most persistent challenges. A nonprofit
based in Boston and San Francisco, Third Sector is supported through philanthropic and
government sources, including a grant from the federal Social Innovation Fund.
Presenters: Rick Edwards and Laila Goldberg
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Agenda
Current Portfolio Overview
• What is Pay for Success and how does it work?
• Understanding the PFS capital stack
• PFS Underwriting Framework
• Getting involved in PFS opportunities
• Q & A and other resources
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What is Pay for Success and how does it work?
What is Pay For Success (PFS)?
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SOCIAL ISSUE with historically poor
outcomes such as recidivism, chronic
homelessness, or early childhood education
identified
2
GOVERNMENT contracts with
intermediary for delivery of
preventive programs to address
social issue
INTERMEDIARY raises capital
from funders and identifies
service providers
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INDEPENDENT ASSESSOR
determines if predetermined
performance targets are met
CONSTITUENTS receive services in an effort to
reach or exceed predetermined outcomes for
success; government repays private funders if project
is successful in achieving positive outcomes
3
PRIVATE FUNDERS provide
upfront capital to intermediary to
pay for social service provider to
deliver preventive programs
SERVICE PROVIDERS receive
funding to deliver evidencebased intervention in effort to
reach or exceed predetermined
outcomes
5
4
6
EVALUATION ADVISOR
Rigorously measures outcomes
to ensure providers achieve
impact
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Key elements of a PFS project
Interventions
that Work
Funder
Feasibility
Significant
Unmet
Needs and
Targetable
Population
Risk
Mitigation /
Appropriate
Safeguards
PFS
Service
Providers
with
Capacity to
Scale
Net Financial
and/or Social
Benefit to
Government
Credible
Data
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How does the funding for PFS work?
The PFS Landscape
Salt Lake County
Early Childhood Education
$6.0 mm
New York State
Recidivism / Workforce Development
$13.5 mm
City of Chicago
Massachusetts
Early Childhood Education
Recidivism
$16.9 mm
$21.3 mm
Massachusetts
Homelessness
$3.5 mm
New York City
Recidivism
$16.8 mm
County of Santa Clara
Chronic Homelessness
$6.9 mm
Cuyahoga County
Chronic Homelessness / Child Welfare
$4.0 mm
State level legislation and / or budget passed supporting PFS
State level feasibility studies / pilot programs / study committees
Federal
Opportunities:
CNCS Social Innovation Fund Pay for Success Grants Competition, HUD and DOJ NOFA, HR 1831, HR 1336,
S 1089, FY16 $300 million “Incentive Fund,” S 2691, Senate Workforce Innovation Act, HR 4885
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What are the opportunities to fund PFS Projects?
FEASIBILITY AND
TECHNICAL ASSISTANCE
Sample activities:
• Assess stakeholder
readiness
• Prioritize target
population
• Design procurements for
providers and other
project parties
• Grants
PROJECT
CONSTRUCTION AND
FINANCING
Sample activities:
• Develop intervention and
evaluation plan
• Financial structuring
• Economic modeling
• Contract formation
• Project fundraising
•
Grants
PROJECT LAUNCH AND
MANAGEMENT
Sample activities:
• Ramp-up and pilot
• Program implementation
• Project evaluation
• Project management
•
•
•
•
Senior Loans
Junior Loans / PRIs
Recoverable Grants
Grants
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The Cuyahoga Partnering For Family Success (Cuyahoga County, OH)
•
$1.58 million in 1st position financing
− $1.58 mm The Reinvestment Fund
100% of principal
at risk: no
backstop or credit
enhancement
•
•
$2.275 million in subordinate loans
− $1.00 mm: The George Fund Foundation
− $0.33 mm: Nonprofit Finance Fund
− $0.75 mm: The Cleveland Foundation
− $0.20 mm: The Sisters of Charity Foundation
of Cleveland
$0.15 million Recoverable Grant
− $0.15 mm: The Sisters of Charity Foundation
of Cleveland
Diverse funding
base designed for
future replicability
Opportunity for
grants to be
recovered for
future projects
$4 million in Total Project Financing
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Underwriting Framework
Assessing Risk in Pay for Success Projects
Current Portfolio Overview
The 4Cs of Credit
The 4Ps of PFS
Character
Partnership
Collateral
Program
Capacity
Policy
Capital
Process
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Assessing Risk: Partnership
Players
•
•
•
•
•
Service Provider
Government
Evaluator
Intermediary
Funders
Mitigating
Factors
•
•
•
•
Relevant Content Knowledge
Organizational Credibility and Capability
Partnership Capabilities
Strategic Plan for Evaluation
Key
Questions
• Have the players worked together on previous projects?
• Does the organization have a demonstrated track record in coaching partner
organizations to more effectively achieve impact?
• Can the organization translate data into actionable insights?
• Does the organization have demonstrated knowledge and experience with
multiple assessment methods?
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Assessing Risk: Program
• Service Provider
Players
• Intervention
• Evaluator
Mitigating
Factors
•
•
•
•
Key
Questions
• Does the service provider have significant experience with beneficiaries?
• Can the impact delivered by this intervention be clearly measured?
• Does the intervention have a long track record of results?
Connection with Target Community and Intervention
Ability to Scale Operations
Interest and Capacity to Undergo Rigorous Evaluation
Funding and Financial Management
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Assessing Risk: Policy
Player
• Government
Mitigating
Factors
•
•
•
•
Key
Questions
• Is there a demonstrated commitment to paying for results?
• Do the parties involved have demonstrated experience with evaluating
performance-based government contracts?
Leadership and Capacity
Partnership Capabilities
Data and Accounting Capabilities
Appropriations
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Assessing Risk: Process
Players
•
•
•
•
•
•
Project Manager
Service Provider
Government
Evaluator
Independent Assessor
Intermediary
Mitigating
Factors
•
•
•
•
•
Leadership, Board, and Staff Interest and Capacity
Strategic plan for PFS implementation
Operational Planning, Performance Tracking and Innovation
Communication and Marketing Capabilities
Risk Management and Infrastructure Capabilities
Key
Questions
• Can the organizations effectively collect and analyze data?
• Are there mechanisms in place to ensure repayment to the investors over the
multi-year life of a transaction?
• Have the organizations demonstrated an ability to manage to outcomes?
• Do the organizations have the capacity to scale operations?
• Do the organizations have a demonstrated track record in raising capital for
new ventures?
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Putting it All Together
Alignment
• Are the partners clearly aligned on the goals, methods, and processes to be
used to do the work?
• Do they articulate these things with a shared vocabulary?
Flexibility
• Do the partners have the ability to be flexible, to accommodate new learning,
changing circumstances, and each other?
• Have the partners worked together before?
Compatibility
Passion
• At the organizational level, are cultures compatible?
• Do the leaders and staffs of the organizations evidence shared values? At
the individual level, do the key players get along?
• Is there clear passion for the work and faith in the proposed project?
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Opportunities to get involved in PFS
New PFS opportunities in 2016
Government
State of Illinois
Issue Area
Justice, Child Welfare
Budget
Provide youth with intensive wraparound 800 youth between 11 –
$15 million
services and treatment
17 years old
4,500 at-risk and
underserved mothers
$10-14
million
Justice
Placed-based supports and services,
care management and crisis support
500 high-risk youth
$12 million
Housing
Assistance to overcome housing
barriers, case management and
employment services, behavioral health
services
Justice
Intensive REACH model, therapy,
housing and employment resources
Health
Improved coordination of
care for acute mental health patients
250 severely mentally
ill adults
TBD
Youth Development,
Justice
Comprehensive, in-home service
delivery as an alternative/diversion from
out-of-home placement
350 at-risk youth, aged
10-18, involved in
juvenile justice system
$10 million
Youth Development,
Education
Friends of the Children: One-on-one
mentorship programs, following young
students through graduation
200 at-risk youth,
aged 5 years old
$10 million
Salt Lake County
Santa Clara County
Target Population
Mental health services, workforce
readiness trainings, wraparound
services
State of Connecticut Health, Child Welfare
New York State
Intervention
State of Oregon
~200 individuals
spending 3-11 months in
emergency shelter
$12-15
million
~200 high-risk, highneed offenders recently
released from county jail
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Q&A
Additional Resources
Nonprofit Finance Fund’s Pay for Success Learning Hub
www.payforsuccess.org
The Reinvestment Fund
https://www.reinvestment.com/initiatives/pay-for-success
Third Sector Capital Partners
www.thirdsectorcap.org
Living Cities
https://www.livingcities.org/topics/social-impact-bonds
Corporation for National and Community Service
http://www.nationalservice.gov/programs/social-innovation-fund/our-programs/pay-success
LISC
www.lisc.org
http://www.instituteccd.org/index.html
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Contact Information
Malini Nayar
[email protected]
David Streim
[email protected]
Andy Rachlin
[email protected]
Rick Edwards
[email protected]
Laila Goldberg
[email protected]
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