They actually found us. I had a relationship with them from working at KOTO for a couple of years. We were really fortunate because what happened then was Australia was just hitting the financial crisis at the end of 2008 and 2009 and the Federal Government put out its economic stimulus package to try and encourage training and employment programs. We very quickly got some Federal Government funding to match the Danish philanthropic money at the end of 2009 and then just started building. It was the green light for the organisation starting, and we have been sprinting ever since.
We didn’t start our first food cart until March 2010 and that was also when our first young people arrived. Since we opened our first food cart at Federation Square, we have grown to having four café locations. We also now have a coffee roasting business and we are now recruiting for our sixth class. We have had five classes of young people and they stay with us for six months. It will now be well over 50 young people who have been through the program.
It is very similar; it is highly supported and intensive. The main difference is that Jamie Oliver is in fine dining and we are operating lower in the market in cafes. The second is that they did a Certificate III, we have a Certificate II; ours is a lower level of training. They are absolutely similar as they tried to build a scalable model, it just did not scale here properly. Here in Australia, the ownership structure was different. They did not own their own restaurant whereas we own our own sites.
All the businesses have to be profitable individually. We have structured each business to be its own standalone business. All are break even and four are profitable. We give each business one year to each become profitable. They are all quite different from each other, have really different customer bases and are really different sizes. Two are just coffee carts whereas two are full on café operations. We have just done an acquisition, so three of the five are very recent additions; we double in size very quickly with the acquisition of the Social Roasting Company.
It’s interesting because it’s the acquisition of an existing social enterprise. I haven’t heard of that happening before, but it is something that we both planned together and worked very well for us.
The second thing is that we went out to find investment, as we did not have money around to make the acquisition, so we looked specifically for investors who wanted both a social and financial return on investment. So you would call them high impact investors. Every year we report to them on financial terms and very tangible social outcomes on each individual site.
Our first year when we were building our financial sustainability was 0%, year two was 3%, last year we were earning 20% and this year it will be around 40%. We have built the business up to being a $2 million business.
The Social Roasting Company came to us and offered the business to us. It was not like we were planning to do an acquisition, so it was a very sudden need for capital. We went looking for high impact investors and we found four of them, three of them are philanthropic foundations and one of those is the original owner of the business. They have kept an equity share in the business.
I can’t disclose that.
It’s no different to any other investors really. The biggest of the investors is the Donkey Wheel foundation, which is also our landlord for our headquarters. They have been very sleeves-rolled-up, helping us to be investor ready. They have helped us find the investment and also to be one of those first investors. They helped us with expertise in capacity building. They all certainly promote it in our networks, and if we were going to do further acquisitions we would want their assistance in looking for like-minded investors.
Each of them is an early adopter in Australia to high impact investing; it’s a really new field. Each of them is investing their corpus, they are not granting.
Philanthropic foundations have a huge pot of money that they invest in the markets themselves. Depending on what structure they have, most of them by law have to grant 5% of the money they make every year to whatever causes they are aligned with.
What has traditionally happened is that 5% is given away as a grant. What is happening here is new territory, as we are in their investment pool; we are in their portfolio of different investments. The dividends we pay to them become part of the money that goes back to other groups. It is a step beyond ethical investment. They are aligning their investments with their mission, which is very new territory in Australia. What it means for social enterprises is whole new pots of capital that we have never really thought about as capital for growth and expansion. Obviously, if you are a social enterprise that wants to grow you want to be investment ready.
Cara Waters is a former SmartCompany editor. Previously, Cara was a senior reporter for the Financial Times’ website and worked for The Sunday Times in London.
