SOCIAL BUSINESS FUND Request for Proposals 2018
TABLE OF CONTENTS I. INTRODUCTION... 2 II. OVERVIEW OF THE BUSH FOUNDATION AND SOCIAL BUSINESS VENTURES INITIATIVE... 2 III. OVERVIEW OF REGIONAL ENTREPRENEURIAL, SOCIAL BUSINESS, AND IMPACT INVESTING ACTIVITY... 2 IV. REQUEST FOR PROPOSALS... 4 Fund Concept... 5 Eligibility and Qualifications... 7 Submission Requirements... 8 Process, Timeline an Submission... 9 V. APPENDIX: NEXT STREET OVERVIEW... 11 VI. APPENDIX: BUSH FOUNDATION EQUITY STATEMENT... 11 Page 1 of 11
I. INTRODUCTION The Bush Foundation ( Foundation ) is soliciting proposals to establish and operate a social business seed investment fund ( Fund ) to invest in social businesses in the Region (defined below). The purpose of the Fund will be to help local social businesses grow their enterprises and impact as well as generate a financial return for Fund investors. The Foundation will invest in the Fund and hopes the Fund will include other investors, initially or over time. II. OVERVIEW OF THE BUSH FOUNDATION AND SOCIAL BUSINESS VENTURES INITIATIVE The Bush Foundation encourages individuals and organizations to think bigger and think differently about what is possible in communities across Minnesota, North Dakota, South Dakota and the 23 Native nations that share the same geographic area (collectively, the Region ). The Foundation invests both in issues that communities across the Region identify and in efforts to address specific issues that the Foundation has prioritized in its four strategic initiatives: Community Creativity, Education, Nation Building, and Social Business Ventures. Grantmaking totaled over $35 million in 2016, and the Foundation currently has approximately $950 million in assets. The Foundation launched the Social Business Ventures Initiative in 2015 with a guiding goal of making the Twin Cities region one of the best places in the country to launch and grow social business ventures. Rather than simply working to generate profits and create value for shareholders, social businesses apply business strategies to solve a social problem and create value for their community. There are a lot of ways through which businesses can create value in a community. The Foundation is particularly interested in supporting the growth of businesses with an intentional and measurable social impact. III. OVERVIEW OF REGIONAL ENTREPRENEURIAL, SOCIAL BUSINESS, AND IMPACT INVESTING ACTIVITY Minnesota, North Dakota, South Dakota and the 23 Native nations that share that geography have a long history of innovation and entrepreneurship. Minneapolis-St. Paul has long been known for its vibrant corporate sector, and the wider metropolitan area is experiencing a surge in entrepreneurial activity and innovation. The Minneapolis-St. Paul-Bloomington metropolitan area ranks 9 th out of 40 major metropolitan areas in the 2017 Kauffman Index of Growth Entrepreneurship, as measured by growth in both revenue and employment. This is up from 16 th in 2016. The metropolitan area also ranks amongst the top 40 Metropolitan Statistical Areas ( MSAs ) in Kauffman s 2017 Startup Activity Index, which focuses on new business creation, market opportunity, and startup density. 1 1 The Ewing Marion Kauffman Foundation. The 2017 Kauffman Index National Trends. Page 2 of 11
The Region s social business landscape is developing rapidly in parallel to this. In 2014, the Minnesota state legislature passed a public benefit corporation statute. In the three years since its adoption, 60+ public benefit corporations have formed. 2 The social business market in the Twin Cities, however, extends beyond the benefit corporation movement. The Minnesota Cup the largest statewide startup competition in the U.S. added an Impact Ventures division in 2009 and has since seen a dramatic increase in applicants. In addition, several social businesses have been selected to participate in the initial cohorts of a growing number of tech-focused startup accelerators in the Twin Cities. The growth of the regional social business landscape is reflected in Minneapolis respectable ranking in the 2 nd Annual Social Enterprise Ecosystems Report ( SEER ). The SEER measures social enterprise ecosystems in 21 top U.S. cities based on funding, human capital, quality of life, and regulation the four pillars identified through the survey as the framework of a successful social enterprise ecosystem. Based on responses from 416 active social entrepreneurs across the country, Minneapolis ranked 8 th out of 21 surveyed cities, scoring higher on quality of life and human capital but held back by funding and regulation/receptivity. 3 Home to the most Fortune 500 companies per capita of any U.S. metro area, there is substantial entrepreneurial activity and corporate social innovation feeding these movements. In particular, the local presence of industry pillars fuels innovation and startup activity in regionally strong verticals such as food and agriculture, health, and environment / sustainability. These verticals have long-standing local traditions and are increasingly catalyzing social business entre- and intrapreneurship, with a particular focus on technology and sustainability. In 2016, the Foundation engaged Next Street to explore opportunities to provide capital and other support to social businesses. The Foundation wanted to better understand the needs of the local social business community, including capital, and use this insight to inform future support. In light of this goal, Next Street interviewed local stakeholders including social businesses, capital providers, and business support organizations to assess the current social business ecosystem in the Twin Cities. The Foundation also wanted to learn from others experience, so Next Street interviewed national thought-leading practitioners to capture trends and innovations. A full presentation of the findings can be found on the Foundation s website. Parallel to the Foundation s Social Business Ventures initiative, there are several new developments underway that will further catalyze social business activity moving forward, including an emerging, Foundation-supported, collaboration in downtown Minneapolis to help social enterprises launch, scale, and expand. This new FINNovation Lab / Impact Hub MSP Collaboration is planned to launch in spring 2018 and will include co-working space and programming tailored to growing the local social business sector and spurring innovation within the broader business community. The Collaboration will serve as the social business hub for the Twin Cities and will be housed in FINNegan s House part of a multi-use development in 2 Office of the Minnesota Secretary of State. Public Benefit Corporations Annual Reports 2017. 3 Halcyon, University of Maryland Robert H. Smith School of Business, Deloitte. 2 nd Annual Social Enterprise Ecosystems Report. Page 3 of 11
downtown Minneapolis that will include a brewery/taproom and hotel in addition to the social entrepreneurship workspace (currently under construction). Despite this activity, however, the overall funding landscape for social entrepreneurs remains sparse in the Region, as there is limited equity investment available to social businesses. In 2016, the Region received less than one percent of venture capital dollars deployed nationally. In terms of venture capital per capita during the same period, Minnesota ranked 28 th among U.S. states, with North Dakota and South Dakota tied for last, with no deals during the year. The Twin Cities of Minneapolis-St. Paul ranked 56 th out of 132 MSAs by the same measure. With an average deal size of $13.1 million and only 28 deals in 2015, the Region s venture firms typically do larger deals and are primarily focused on high-growth technology and life sciences companies. 4 There is also a growing impact investing movement in the region. In 2016, the Foundation helped catalyze the local impact investing ecosystem, supporting a project to map the local ecosystem and convene key stakeholders as a call to action. Subsequently, in May 2017, the Minnesota Council on Foundations announced a unique impact investing collaborative: the Minnesota Impact Investing Initiative, a now $22 million fixed-income fund that invests in affordable housing, small businesses, and civic infrastructure in Minnesota. The collaborative effort includes commitments from several local prominent foundations. 5 Local asset owners are increasingly seeking opportunities to invest locally and generate social impact with their investments. IV. REQUEST FOR PROPOSALS The Foundation is requesting proposals to establish and operate a social business investment fund ( the Fund ) to invest in social businesses located in the Region. The Foundation is prepared to make a meaningful investment in the Fund. The Foundation s vision for the Fund is to deploy Bush Foundation and others investment capital to catalyze local seed-/early-stage social business formation and growth while also generating financial returns. For social businesses, the goal is for investment capital to fuel growth and impact and to bridge the businesses to large scale venture or debt investments. For Fund investors, the goal is to generate social impact alongside financial return. The Foundation has purposely avoided being overly specific or prescriptive; we expect and look forward to dialogues with a diverse range of respondents (e.g., established organizations to individuals), and are open to a wide range of Fund strategies and structures. 4 PricewaterhouseCoopers and CB Insights. 2016 MoneyTree Report: Venture Capital Dollars and Deals per State, 2010 2015. 5 Minnesota Council on Foundations. $20M Impact Investment for Affordable Housing and Small Business in MN. April 2017. Page 4 of 11
Fund Concept The Foundation has developed a preliminary fund concept with core components as well as preferred elements to be considered by respondents for incorporation. Some elements of the Fund are flexible where the Foundation has no strong preference. The Foundation will consider a wide range of proposals with discretion on flexible components of the Fund. Core Components In summary, the Fund will invest in for-profit social businesses located in Minnesota, North Dakota, South Dakota and the 23 Native nations that share the same geography. The full set of core components, which the Foundation would like included in the Fund strategy and structure, is listed below: Investee Type Investee Stage Investment Strategy > For-profit social businesses: o The Foundation s definition of a social business is a business that intentionally seeks and measures social and financial return > Seed and start-up stage businesses: o Businesses equipped with a full business plan but in the initial stages of developing a new product or service and testing/bringing that product/service to market; the business may or may not have formally established operations and/or have secured initial customers/revenue > Geographic focus: o Businesses located in Minnesota, North Dakota, and South Dakota and the 23 Native nations that share the same geography > Scalable business models: o Businesses with significant growth potential, potentially through technology Impact Measurement and Reporting Physical Location > In addition to financial returns, the Fund must measure and report the social impact of its investments o This may occur in collaboration with investees, and the Foundation is flexible on collection and reporting processes and output > The Fund manager will have a meaningful physical presence in the Region Page 5 of 11
Preferred Elements Respondents are encouraged to consider incorporating the following elements into their responses: Diversity and inclusion Advisory support > Goals and/or guidelines for diversity and inclusion (either for portfolio companies, impact outcomes, and/or Fund staff) > Strategic advisory and operational support of some kind to investment companies Optional & Flexible Elements Flexible elements are required details in proposals, but the Foundation is open to considering a range of proposals on these elements. Optional elements are elements that respondents may or may not incorporate as they see fit based on past experience and perceived importance. Flexible Elements Optional Elements > Investment capital type: o e.g., equity, preferred equity, debt, or blended finance; the Fund should consider the typical profile of seed and start-up stage companies > Target investment size and range: o Target investment size and range; while the Foundation is most comfortable with an investment range between $50,000 and $250,000, this is tentative/flexible and the Foundation is most concerned with proposals consideration of the typical needs of seed and start-up stage businesses > Target/expected financial return > Fund entity type o e.g., closed-end GP/LP structure, evergreen structure, nonprofit > Fund terms o e.g., fees, entry/exit terms > Sectors of focus: o Regionally vibrant sectors e.g., food and agriculture, healthcare, financial services, energy, technology > Impact areas or specific goals o The Foundation s strategic initiative areas community creativity (i.e., arts and culture), education, Native nation building (e.g., government transparency, civic engagement etc.) o Other (e.g., sustainable energy, poverty alleviation, financial inclusion) Page 6 of 11
Eligibility and Qualifications Individuals and organizations with relevant investment experience across a range of backgrounds and industries are encouraged to submit proposals. While individuals and organizations need not have direct experience investing in businesses within the Foundation s core and preferred social business parameters, the Foundation will only consider entities/individuals with proven investment track records. Typical segments of respondent profiles include: > Individuals o > Organizations o o o o o With traditional and/or impact investing experience, including backgrounds in a venture capital, private equity, investment banking, commercial banking and/or other lending role Venture capital Private equity Non-bank, alternative lenders e.g., Community Development Financial Institutions (CDFIs) Investment Banks Banks, including commercial banks, community banks, and credit unions While not required, the Foundation will also consider respondents direct entrepreneurial and/or social business experience. Page 7 of 11
Submission Requirements Proposal submissions must include at least the following sections and key details. The RFP process is the first step in a multi-step process that includes subsequent rounds of interviews and final due diligence. Initial proposals should be concise and outline the high-level respondent background, qualifications, and proposed Fund strategy and structure. As noted above, we expect and look forward to a dialogue with respondents, working with select respondents to shape an approach with the highest likelihood of success. I. Overview a. Summary of proposal b. Why are you or your firm interested in and uniquely qualified for this opportunity? II. Firm Overview (or personal background and qualifications if an individual) a. Brief firm history b. Organizational overview, including number of employees by department/function and detail of key leadership and investment professionals c. Organizational experience with and commitment to diversity, equity and inclusion III. Investment Activity (or personal track record if an individual) a. Investment philosophy and process b. Investment strategies (or funds), including strategy detail, assets under management (AUM) c. Financial performance and social performance/impact summary (in aggregate and by fund if applicable) IV. Proposed Social Business Fund a. Investment strategy, addressing all core components outlined in the Fund Concept section, and: i. Target fund size ii. Target investment size and range iii. Target financial returns (and impact goals if applicable) iv. Investment capital type (e.g., debt, equity, blended finance) b. Fund structure, including entity type c. Fund terms, including fees and entry/exit terms d. Team composition and structure, including detail on Fund investment professionals e. Proposed timeline for Fund setup and launch, including approximate timing of initial investment(s) V. Respondent Questions Proposals must not exceed ten pages in length. However, respondents may also submit relevant supplementary material (e.g., investor presentations, detailed performance reports). Page 8 of 11
Evaluation Criteria While not exhaustive, proposals will be evaluated based on alignment with the Foundation s values and the Fund s core, preferred, and optional/flexible elements across the following criteria: > People Quality, depth, and experience of an individual investment professional or investment firm; if a firm, includes evaluation of the organizational structure and capacity > Investment Philosophy and Process Historical and proposed investment strategy, approach, style, research, sourcing, due diligence, and monitoring and evaluation processes > Investment Performance Track record of generating meaningful risk-adjusted financial and social returns/impact > Values Alignment Alignment with the Foundation s values, including adherence to Fund concept core elements, respondent s track record of generating social impact, and respondent s commitment to diversity, equity and inclusion Process, Timeline & Submission The manager search process will be a multi-step process culminating with the manager selection in mid-2018. The Bush Foundation and the Next Street team will host a webinar covering the RFP and Fund concept on January 23 rd at 2pm Central Time. If you wish to attend the webinar, please email Frances Dougherty of Next Street (fdougherty@nextstreet.com) by COB on January 22 nd. A replay of the webinar will be available for interested parties unable to participate. Proposal submissions must be emailed to Frances Dougherty (fdougherty@nextstreet.com) by COB Friday February 23, 2018. Following proposal submission, Next Street will lead the following process: Screening and Interviewing: Following submissions, a select group of respondents will be contacted in late February / early March for phone interviews with the Next Street and Bush Foundation teams. Page 9 of 11
Due Diligence: Over the six to eight weeks from late-march to early May 2018, Next Street will conduct due diligence on finalists. Due diligence will consist of document review, multiple phone and in-person interviews, and at least one on-site visit. Manager Selection Based on due diligence findings, the Foundation will announce the fund manager by late summer 2018. Following announcement, the Foundation will work collaboratively with the selected fund manager to launch the fund by early 2019. Timeline: Key Dates January 8, 2018 RFP released January 23, 2018 Informational webinar, including Q&A February 23, 2018 Proposal submissions due via email by COB Late-February to Late-March 2018 Screening and interviewing Late-March Early May 2018 Finalist due diligence Late summer 2018 Fund manager selection announced Page 10 of 11
V. APPENDIX: BUSH FOUNDATION EQUITY STATEMENT Equity is central to the Foundation s purpose: to inspire and support creative problem solving, within and across sectors, to make the Twin Cities region better for everyone. The Foundation is committed to working to bring an equity lens to all that it does from major strategic priorities to the countless small decisions it makes every day. As a charitable foundation, we have a particular obligation to live up to high standards of diversity, equity and inclusion. We have a power in the issues we raise, the questions we ask, and the people and organizations we fund. For us to be effective in addressing issues in communities throughout the region, we must be sensitive to and savvy about differences such as culture, race, income, gender identity, geography, physical ability, religious belief, or any other difference that is meaningful in understanding an issue and how it might be addressed. We see equity as part and parcel of excellence. And we are committed to becoming excellent. As we work toward being more equitable, we plan to publicly share our successes and setbacks in hopes we can be useful to others. We do so with humility and recognition that we are and will always be a work in progress. The full Bush Foundation equity statement is available here. VI. APPENDIX: NEXT STREET OVERVIEW Next Street is a mission-driven advisory firm that serves as a trusted advisor to some of the country s most dynamic organizations, providing strategic and capital advice to revitalize communities, grow businesses, and create jobs. Next Street works with organizations that are innovative, forward-thinking, and growth-oriented including small businesses and nonprofits, as well as investors, anchor institutions, and government and economic development entities. Next Street is a certified B Corp with offices in Boston, New York City, and Chicago. Page 11 of 11