Most organisations hold more than one investment engagement and invest in multiple organisations. Portfolio management entails developing a diversified investment strategy with various investment vehicles that collectively achieve the overall social and/or financial mission of the social investor. Some considerations for funders are
- what kind of organisations are added to the portfolio (pre-engagement),
- how to evaluate each organisation’s contribution (impact assessment),
- how social and potentially business outcomes of the supported organisations can be maximised (capacity building), and finally
- how to exit organisational engagement at the end of the engagement period (exit strategy)
Through these practices, portfolio management is linked to pre-engagement processes, underscored by capacity building and informed by impact assessment.
In this case study, we will highlight how Bridges Ventures sets the strategy for its portfolio and how it manages impact. In particular, the case looks at how its impact themes[i] influence the sectors it selects. The themes also influence the kind of funds that Bridges has initiated, resulting in a multi-fund platform. Across each of these funds, Bridges has a consistent impact methodology. Together, these form an ‘impact lens’ which informs Bridges’ investment strategy.
The case has been divided into two parts. In the first part, we introduce Bridges’ ‘impact lens’ that has three core components providing guidance for strategy and action: the four impact themes, the multi-fund approach, and the consistent ‘SET’ process. In the second part, the case outlines how this is implemented in processes from organising the team, liaising with stakeholders and fundraising to exit, including Bridges’ view on the value of aggregating data. To start, we’ll provide more information about Bridges Ventures’ organisation and funds.
Outline of the organisation
Bridges Ventures LLP is a specialist fund manager and certified B Corp[ii] focused exclusively on sustainable and impact investment, with offices in London, New York and San Francisco. It invests in high-impact SMEs, properties, and social sector organisations that can generate attractive returns for investors and positive societal impact, with a focus on four key impact ‘themes’: health & well-being, education & skills, sustainable living and underserved markets. It manages almost 600 million GBP across its Sustainable Growth, Property and Social Sector funds. It also created the Bridges Charitable Trust, which is funded through 10% of the Bridges team’s profits from all funds.[iii]
Information on the Portfolio
Bridges Ventures has three distinct fund strategies in addition to the Bridges Charitable Trust (see Appendix 1 for more detail):
- The Bridges Sustainable Growth Funds (SGF) invest in for-profit high-impact SMEs operating in one or more of its four impact themes.[iv] The first of these funds was launched in 2002.[v]
- The Bridges Property Funds invest in a number of real estate propositions in the UK with social and/or environmental impact. The first fund, the Sustainable Property Fund, was launched in 2009. The CarePlaces Fund was closed in 2012.[vi] In 2014, the Property Alternatives Fund III achieved a first close of 123 million GBP and in 2015 a final close of 212 million GBP.
- Bridges Social Sector Funds currently comprise two funds. The first, Bridges Social Entrepreneurs Fund, was launched in 2009. It was supported by the Bridges Charitable Trust which achieved a final close in 2011.[vii] The fund is now fully committed. Bridges later launched the world’s first Social Impact Bond (SIB) Fund with the rationale of sparking “charities to behave entrepreneurially”. The SIB Fund had a final close of 22.5 Million GBP in 2014.[viii]
Separate from all funds is the Bridges Charitable Trust, founded in 2006[ix]. Regulated by the Charity Commission and with a majority of non-Bridges Ventures Trustees[x], it is “funded primarily by the Bridges Ventures team, who have committed to donate 10% of their individual profits to the charity. As Bridges’ assets under management grow, and the various funds successfully exit their investments, this should result in a growing stream of income for the Trust – giving it ever-greater firepower to finance its charitable activities”[xi] (e.g. seeding the Social Entrepreneurs Fund).
Priorities for the Portfolio Strategy
Across each of these funds, Bridges Ventures applies an ‘impact lens’[xii] which drives its investment strategy:
- Thematic Approach: First, Bridges looks for opportunities where its funds can support investable solutions to pressing social and environmental problems. Over time, the team has learned to focus on four impact themes: underserved markets, health & well-being, education & skills, and sustainable living. Within these themes, the investment teams start by identifying what the specific challenges are; who is being affected; and what kind of support is needed that they are currently not getting. By consistently focusing on the same impact themes, Bridges has developed a deep understanding of the structural issues behind a range of pressing problems. As director at Impact+ Emilie Goodall outlines: “We start with the idea of a changing demographic, such as an ageing population, and then think about which impact themes to focus on – for instance health and well-being – and then think about the business opportunities. So we start from an issue-based perspective, which means beginning with the challenges”.[xiii]
- Multi-Fund Strategy. Within each impact theme, there is a wide array of business models, offering different risk-adjusted financial returns. There is an increasing range of impact motivations among investors, making it possible to design investment strategies that promote entrepreneurial solutions to societal challenges. Each one of Bridges’ funds has been designed to ‘align’ with the financial and impact expectations of different investors – allowing them to draw a wide array of asset-holders to invest for impact.[xiv] With the available funds and the Charitable Trust, the core question is which investment strategy and therefore vehicle is most appropriate to deliver optimal commercial and social value. This, coupled with its thematic focus above, has enabled Bridges to build a thorough understanding of which business models will thrive in what context – and appropriate investment strategies that will yield the best results for investors, from both a financial and impact perspective.The investment model of Bridges’ Sustainable Growth Funds (SGF) is a traditional venture capital approach: the funds buy shares in companies and the fund manager works with management teams to grow the businesses and make them more valuable. At the end of the investment period, the fund does not typically get repaid by the companies but instead sells its shares by floating the company or, more often, by selling it onto someone else. The same strategy applies in the Property Funds, which undertake transactions both directly and in joint venture with investment and development partners.This model is not appropriate for enterprises where the social mission requires a prioritisation of impact over competitive investor returns, whether because of the enterprise’s structure (for example, a trading charity), its business model (such as a cross-subsidy model where all profits are re-invested) or its target market (perhaps it focuses exclusively on disadvantaged consumers that do not represent a commercial growth opportunity). Not only can the financial returns from such ‘social enterprises’ be lower than their mainstream private sector equivalents but the exit route used by venture capital funds is also not available: the owners may not be able to sell shares due to the legal structure of the enterprise; while those that can may not be comfortable selling to another business or issuing stock on an ordinary exchange (in the case that their social mission is not well aligned with that of the new owners). These challenges then led to the development of the Social Entrepreneurs Fund.[xv]
- The ‘SET’ process: Bridges calls its investment approach ‘impact-driven’, because it uses impact as a lens to identify and create value at every stage of the investment cycle. The diagram below illustrates how Bridges has learned to do this to best effect, across its multi-fund strategy, integrating the impact lens into the investment management process in five steps as displayed in the diagram:
- Bridges looks to select investments where it thinks impact and high-growth can go hand-in-hand; so where creating societal value can also drive financial value (marked 1 on the diagram below). Its impact focus helps to secure investments, by identifying opportunities where others are not looking. Also, it helps open the door to management teams in thematic areas like health and education, where they tend to have a strong sense of purpose. As part of its due diligence, Bridges conducts a thorough assessment of the potential impact risks and rewards – using them as clues to identify where value may need protection as well as where untapped growth may lie.
- This analysis is used as the basis for how Bridges engages with entrepreneurs, management teams and joint venture partners to execute the identified strategy (2). Bridges has found that applying impact as a lens in this execution phase can serve to energise management teams and staff. It believes its focus on sustainability and impact throughout the investment process helps build higher-value businesses and thus deliver attractive investor returns.
- This engagement with partners is informed by the work done to track the performance of investments against a set of pre-agreed indicators (3).
- The performance data helps to drive timely management decisions (4).
- It also helps in investing more effectively in the future, by giving Bridges a deeper understanding of the challenges involved (5).
This process also helps portfolio companies communicate the societal value being created to other stakeholders, such as customers, employees and suppliers. It builds a strong and sustainable stakeholder base, helping tailor the business for exit.[xvi] An example of this is The Gym Group and Bridges’ subsequent investment in a low-cost gym group, Viva Gym, in Spain.[xvii]
The ‘SET’ process is guided by two principal tools. The first is the Impact Radar, which is used to assess more impactful sub-sectors and then individual potential investments. It has four criteria, which are reviewed in terms of both impact return and impact risk:
- target outcomes
- environmental, social and governance factors
- additionality and
This analysis then informs the second tool: a bespoke ‘Impact Scorecard’ against which investees report and are benchmarked post-investment.[xviii] “The scorecard is developed collaboratively with investees during the due diligence phase, when we establish existing / potential key performance indicators (KPIs) that are aligned with the theory of change. We then develop appropriate benchmarks and targets for KPIs with the company,” according to Emilie Goodall.[xix] The same Impact Scorecard is subsequently used in the annual review of each investee.[xx]
Together these three parameters influence Bridges Ventures’ investment strategy and summarise how it manages social value creation through different business models and, therefore, different investment propositions.
Managing the Portfolio
The steps to manage the ‘SET’ process involves setting up the team internally, managing impact, building capacity, liaising with stakeholders throughout, and – finally – deciding on an exit route and time.
Organising the team around priorities
The ‘SET’ process is managed via investment teams, with each deal having an investment lead and mini project team. The Impact+ team plays a supporting role, advising at key touchpoints and generally ensuring there is a consistent, evolving impact methodology that is practically applicable across the funds in a way that informs investment decisions.
Bridges Ventures’ organisation is generally lean, with thirteen investment professionals in the Growth Funds (UK and US), five in the Social Sector funds, and five in the Property funds, supported by three full-time equivalents in the Impact+ team (UK and US).
While Bridges uses the Impact Radar to assess sub-sectors and individual potential investments, aggregation is not the norm. This has a practical reason behind it, but is largely influenced by the view that it does not provide useful insights.
The practical reason is that the score cards and the impact radar are metrics set from the bottom up and are based on different theories of change. As a result, “within our broad impact themes we have quite a diverse set of deal-level KPIs, without a huge amount of comparability across our investments for a number of our impact KPIs” according to Emilie Goodall.[xxi]
Beyond the practical constraint of aggregating unique KPIs, Bridges also is more interested in understanding performance: “We aggregate what we can but we are much more interested in tracking data for performance management at the individual company level, because aggregated data doesn’t help you performance manage.”[xxii]
Aggregation for insight occurs on two levels. Some KPIs can be aggregated to provide a snapshot of the portfolio’s footprint, as is outlined in the Selected Highlights in the 2015 Impact Report: “Over 2014/15, Bridges Ventures helped learners gain over 4,000 qualifications, moved over 1,000 previously unemployed people into jobs, provided quality at-home care to nearly 3,000 individuals, reduced carbon emissions across our property portfolio by an average of 50%, and prevented over 800 young people from dropping out of education, employment and training.”[xxiii]
There are exceptions where organisations are working in similar sectors, tackling similar challenges. For example, in domiciliary care, Emilie Goodall outlined two similar investments in two different funds: “We have a for-profit company, Alina[xxiv], in the Sustainable Growth Fund, and then in our Social Entrepreneurs Fund we have invested in CASA[xxv], which builds and develops employee-owned franchise companies in the domiciliary care industry. These are in different funds because they have different business models, but their scorecards look similar.”
Capacity building for the investee and Bridges Ventures
There is no fixed pool of capital that investees apply for. “We look at the organisation at the beginning of due diligence to appraise the valuation and capital requirements, which is directly linked to the growth strategy. The business may require investment in sales and marketing, or capital expenditure, for example, and frequently will require additional management and governance capacity as the business grows. We have a very hands-on approach, we sit on the board, meeting probably monthly, so there is a lot of investment of time and effort and capital that is going into growth in the company and increased valuation. None of our fund capital is provided in grant form.”[xxvi]
One exception may be for organisations that are funded by the Bridges Charitable Trust. For instance, the Trust provided seed funding for Unforgettable, a start-up enterprise that aims to provide life-changing advice, support and useful products for those living with dementia. The charity’s investment enabled Unforgettable to build and establish the concept, which subsequently enabled it to raise additional funding from other social investors. Given that this funding was awarded not only pre-revenue but also pre-business plan, the charity’s trustees were of the view that without this funding, Unforgettable might otherwise have struggled to raise the capital it needed to finance this concept development phase. This was the first ‘venture philanthropy’ style investment of the Trust – but trustees hope it will be the first of many.[xxvii]
Communicating with stakeholders
During the fund(s) lifecycle, annual partnership meetings include detailed presentations from the General Partner (GP) to all investors. In these meetings Bridges presents the results of the relevant fund(s), presenting impact and financial performance hand-in-hand, including an updated Impact Radar and Impact Scorecard for each investment.
Some investors are invested across all three funds – Growth, Property and Social Sector funds – reflecting Bridges’ multi-fund offering. Indeed, Bridges “has historically combined the Growth and the Property funds partnership meetings because a number of investors are investing in both strategies.”[xxviii]
Subsequent to the partnership meetings, Bridges Ventures publishes an annual impact report which articulates the learning from the year, pulling information together from across the funds to provide a sense of the impact of Bridges’ overall portfolio.
Independently of the partnership meeting, “investors receive the report of the specific fund they have invested in, which is fully detailed.” This includes individual scorecards of portfolio companies, including targets and benchmarks, as well as an updated impact radar. However, score cards are not fully aggregated as yet at fund or wider portfolio level for a number of reasons, as discussed above.
Finally, exiting investments is about finding the right time in the market, which may differ from the initial estimation of this at the due diligence stage – at which point Bridges will have formed a view of potential future exit strategies, prospective buyers, and an estimated timeframe, which may change depending on market conditions and performance of the company.
This case has outlined the means by which Bridges sets its strategy and how this is manifested in the internal organisation and liaison with stakeholders as well as fundraising practices and exit strategies. Noteworthy in this are the tools such as the Impact Radar and the Impact Scorecard that Bridges uses. Also useful are the arguments for and against aggregation which reveal a focus on insight: data is compared for similar ventures, e.g. in the domiciliary care areas, or aggregated for selected highlights, but otherwise kept as granular as possible to understand and to manage performance together with the investee.
Bridges Ten Year Report 2013: A decade of investing for impact and sustainable growth – available at
Bridges Impact Report, 2013: A spotlight on methodology – available at http://www.bridgesventures.com/wp-content/uploads/2013/11/IMPACT_REPORT_2013_Final_hires-spreads.pdf
Bridges Impact Report, 2014: Learning from a Multi-Fund Approach – available at http://bridgesventures.com/bridges-impact-report-learning-multi-fund-approach/
Bridges Annual Impact Report 2015: The Value of Impact – available at http://bridgesventures.com/bridges-annual-impact-report-the-value-of-impact/
The Sustainable Growth Funds (SGF) invest in for-profit high-impact SMEs operating in one or more of Bridges’ four impact themes.[xxix] The first fund under this segment was the Bridges Ventures Fund I. It invested primarily in property-backed businesses in underserved areas. The second SGF, Bridges Ventures Community Development Venture Fund II, was launched in 2007 and continued the property-backed operating business focus with a sustainable living (environmental) focus. Sustainable Growth Fund III achieved its first close in 2011 and final close in 20123 at 125 Million GBP. The funds target investments where societal impact and commercial success go hand-in-hand.
The Sustainable Property Funds in the UK invest in a number of real estate propositions with social impact. In 2009, the Sustainable Property Fund was launched. The CarePlaces Fund was closed in 2012.[xxx] In 2014, the Property Alternatives Funds III achieved a first close of 123 million GBP and in 2015 a final close of 212 Million GBP.
The Social Sector Funds began with the Social Entrepreneurs Fund, launched in 2009, supported by the Bridges Charitable Trust, achieving a final close in 2011.[xxxi] Building on its experience with the Social Entrepreneurs Fund, Bridges launched the world’s first Social Impact Bond (SIB) Fund. The rationale is detailed in the 2014 Impact Report: “By its very nature, a SIB sparks charities to behave entrepreneurially – backed by the private-equity-style management support that is a hallmark of Bridges’ approach. So this year, we launched the Bridges Social Impact Bond Fund, which is dedicated exclusively to this kind of investing. As an innovative product without an established track record, our Social Impact Bond Fund has been kick-started by investors willing and able to support an unproven but potentially high impact model. Over time, it is possible that SIBs will prove to be an investment opportunity capable of delivering competitive risk-adjusted financial returns – which may be relatively uncorrelated to the economic cycle.” The SIB Fund had a final close of 22.5 Million GBP in 2014.[xxxii]
Separate from all funds is the Bridges Charitable Trust, founded in 2006.[xxxiii] Regulated by the Charity Commission and with several non-Bridges Ventures Trustees[xxxiv], it is “funded primarily by the Bridges Ventures team, who have committed to donate 10% of their individual profits to the charity. As Bridges’ assets under management grow, and the various funds successfully exit their investments, this should result in a growing stream of income for the Trust – giving it ever-greater firepower to finance its charitable activities”.[xxxv] One of these activities was seeding the Social Entrepreneurs Fund: “Recognising that backing these enterprises could be another powerful way to use investment to address tough societal challenges – and that our venture capital skills of hands-on management support and tailored financing structures were equally applicable to these sorts of social enterprises – we launched the Bridges Social Entrepreneurs Fund in 2009, as an initiative of the Bridges Charitable Trust, backed by a handful of progressive foundations, individuals and the government, all of whom were willing to forgo some financial return on investment in favour of maximum social impact.”[xxxvi]
[i] Bridges Annual Impact Report 2015, p. 10
[ii] Bridges Annual Impact Report 2015, p. 25
[iii] Bridges Annual Impact Report 2015, p. 9
[iv] Bridges Ten Year Report, p. 14
[v] Bridges Impact Report 2014: Learning from a Multi-Fund Approach, p. 5
[vi] Bridges Ten Year Report, p. 28
[vii] Bridges Impact Report 2014: Learning from a Multi-Fund Approach, p. 7
[viii] Bridges Impact Report 2014: Learning from a Multi-Fund Approach, p. 7
[ix] Bridges Impact Report 2014: Learning from a Multi-Fund Approach, p. 5
[x] More on Bridges Charitable Trust see http://bridgesventures.com/bridges-charitable-trust/ and http://beta.charitycommission.gov.uk/charity-details/?regid=1129756&subid=0 and Charity Commission 1st annual report is from 2010, see http://beta.charitycommission.gov.uk/charity-details/?regid=1129756&subid=0.
[xi] The Bridges Charitable Trust Trustees’ Annual Report & Accounts for the year ended 31 March 2015, p.2
[xii] Bridges Annual Impact Report 2015, p. 10
[xiii] Call with Emilie Goodall, Director of Impact+, on 23 Dec 2015
[xiv] Bridges Impact Report 2014: Learning from a Multi-Fund Approach, p. 8
[xv] Bridges Ten Year Impact Report
[xvi] Bridges Annual Impact Report 2015, p.8
[xvii] Bridges makes European debut with investment in Viva Gym in Spain http://bridgesventures.com/bridges-makes-european-debut-with-investment-in-viva-gym-in-spain/
[xviii] Conversation with Olivia Prentice on 30 Sept 2015
[xix] Call with Emilie Goodall, Director of Impact+, on 23 Dec 2015
[xx] Bridges Ten Year Impact Report
[xxi] Call with Emilie Goodall, Director of Impact+, on 23 Dec 2015
[xxii] Call with Emilie Goodall, Director of Impact+, on 23 Dec 2015
[xxiv] Bridges Annual Impact Report 2014, http://www.alinahomecare.com/ and http://bridgesventures.com/portfoliolist/alina-homecare/
[xxv] Bridges Annual Impact Report 2014, p. 11
[xxvi] Call with Emilie Goodall, Director of Impact+, on 23 Dec 2015
[xxvii] The Bridges Charitable Trust Trustees’ Annual Report & Accounts for the year ended 31 March 2015, p.4
[xxviii] Call with Emilie Goodall, Director of Impact+, on 23 Dec 2015
[xxix] Bridges Ten Year Report, p. 14
[xxx] Bridges Ten Year Report, p. 28
[xxxi] Bridges Impact Report 2014: Learning from a Multi-Fund Approach, p. 7
[xxxii] Bridges Impact Report 2014: Learning from a Multi-Fund Approach, p. 7
[xxxiii] Bridges Impact Report 2014: Learning from a Multi-Fund Approach, p. 5
[xxxiv] More on Bridges Charitable Trust see http://bridgesventures.com/bridges-charitable-trust/ and http://beta.charitycommission.gov.uk/charity-details/?regid=1129756&subid=0 and Charity Commission 1st annual report is from 2010, see http://beta.charitycommission.gov.uk/charity-details/?regid=1129756&subid=0.
[xxxv] The Bridges Charitable Trust Trustees’ Annual Report & Accounts for the year ended 31 March 2015, p.2
[xxxvi] Bridges Ten Year Report, p. 25
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