The clue is in its name: the Brabant Outcomes Fund pays investors a return based on performance. In fundraising for a new €20mn fund, the BOF is trying to find private investors’ sweet spot.
Ctalents is a social enterprise that assists blind and deaf people in finding a first job or a successful next step in their career. The company initially sought capital from traditional financial institutions to scale up its activities, but these attempts were in vain.
Ultimately, it attracted the necessary funding from the Brabant Outcomes Fund (BOF), a fund initiated by the provincial government of Noord-Brabant in the south of the Netherlands. Ctalents was one of four social enterprises that received pre-financing in the pilot phase of the fund.
Next year the provincial government will pay back its three investors their total investment of €1mn, plus a bonus if the BOF achieved its predetermined financial and social goals.
After the first experiences and lessons learned, the local government is now taking a more ambitious approach. It is launching a new €20mn outcomes fund that aims to support some twenty local companies that struggle to find venture capital from conventional investors.
Seeking private co-investors
The new fund focuses on companies that contribute to the energy transition, an inclusive labour market or the circular economy. In contrast to the pilot phase, the new outcomes fund primarily offers loans instead of grants.
The province will act as a co-investor. It has made €7mn available in the form of loans and €2.5mn in working capital. It is in talks with potential investors like banks and equity funds to attract €10mn.
The new BOF promises investors will receive a return of 4.5% on their investment, provided the predetermined goals are achieved. The European Investment Fund (EIF) is also expected to co-invest.
“It’s so new what we’re doing, we need to explore what the trigger is for investors to get in,” says BOF project leader Astrid Kaag. The outline is there, but we will do the actual implementation together with them.” She expects the new fund to be ready to go after the summer.
“Banks or pension funds focus on financial indicators,” Kaag says. “We also look at what these companies do for society. This way, the province wants to contribute to the desired sustainability transition.”
The province sees this desired transformation as a shared responsibility. Kaag: “The province is prepared to put money into this approach, on the condition that other parties also join in. Public and private stakeholders should share the risks together.”
Together with Portugal, the Netherlands is the most active member state within the European Union in setting up social impact bonds and outcomes funds (in most cases a bundling of different impact bonds).
Both countries count sixteen impact bonds, according to data of SocFin NL and GoLab, the database that tracks impact bonds globally.
In most of the impact bonds that have been set up so far, municipalities act as outcome payers. The investors are mainly socially-oriented equity funds or philanthropic funds.