Bold new way to invest for social change
4 December 2019 at 8:38 am
Xceptional raises $600,000 using Australian-first impact-linked loan scheme
The coming together of Xceptional, a business which helps place people on the autism spectrum into specialised IT roles, and Impact Investment Group (IIG), has resulted in an innovative new funding mechanism that the organisations hope can be replicated in the future.
Beneficial Outcomes Linked Debt – or BOLD – is an Australian-first loan scheme, designed and led by IIG, where Xceptional’s loan balance will be reduced not just by their cash repayments but also by the number of people they place in jobs.
The model provides debt that is reduced based on repayments and impact, with repayments based on a share of revenue, instead of an interest rate.
The result is a model which solves two problems: it incentivises for impact and it is founder friendly.
IIG CEO Daniel Madhavan said this new form of loan was a game-changer for “businesses making the world a better place”.
“BOLD is tailored for entrepreneurs who are making a difference. It financially incentivises them to keep delivering their social or environmental benefits,” Madhavan said.
“Often other types of finance, like traditional venture funding, or a loan from a standard finance company, can drag a purpose-driven founder away from their mission and the very reason they started their company. There’s no other type of loan arrangement in Australia like this.”
Dr Erin Castellas, IIG chief impact officer, told Pro Bono News that BOLD demonstrated how you can innovate with finance and reorient capital to be more intentional and deliberate about driving positive outcomes.
“I think that at IIG, what we’re hoping for is in some cases to demonstrate that this is possible, that finance can be used to drive positive outcomes and we’re willing to experiment. And then we hope to share that with others,” Castellas said.
From the start the BOLD model was designed to be a template that could be replicated.
Castellas said they were conscious in designing it not to overburden founders of small enterprises, with complex measurement pieces that are either hard to implement or hard to understand.
“It’s really important that what we’re doing is practical and it doesn’t stifle the efforts of the organisation, but still provides useful feedback as to whether we’re on track with what we’re trying to achieve,” she said.
The design process included two important parts; negotiating a new kind of mechanism that would meet the goals of the investors and the borrower, and agreeing on an impact metric that avoided the risks of perverse incentives.
When choosing the right incentive mechanism and measurements tools to capture beneficiary wellbeing, Castellas said it was important to go back to first principles and establish the theory of change.
For Xceptional the aim is to support people who are living on the autism spectrum to have improved quality of life.
“So there were a couple of considerations. The fundamental change or outcome we’re hoping for is an improved quality of life for the beneficiary, but the sort of intermediate proxy is around jobs,” Castellas said.
But they also wanted to ensure the beneficiary had a voice in saying whether it was helpful.
“So we pushed and pulled that apart. What we landed on is, when you go to have a child, you wouldn’t pretend if you ask somebody when they had a child, did your financial position improve, has your relationship improved… but are you happy you had a child? Yes. The same principles apply to this scenario,” Castellas said.
“We didn’t want to pretend to deconstruct it and get overly prescriptive about what would make someone feel that this was helpful. We just want to ask them and give them the agency, and the power to say, did this help me?”
With this in mind, Xceptional’s BOLD contract values jobs, and includes the overall wellbeing of the people in those jobs.
The unique loan arrangement – backed by Tripple, the Community Impact Foundation, the Disability Impact Fund and the Snow Foundation – has helped the business raise $600,000.
The BOLD investment was supplemented by an equity investment from private investor Roslyn Baguley.
Since launching in 2017, Xceptional has placed over 30 candidates in specialised IT roles and aims to use the funding to place 60 more over the next year.
Mike Tozer, CEO and founder of Xceptional, said the growth to date speaks to the opportunity in placing neurodiverse candidates in specialised roles and shattering any stigma around hiring these candidates.
“Those on the autism spectrum, for example, often have remarkable attention to detail and advanced problem-solving skills, making them ideal candidates for complex code testing tasks,” Tozer said.
“So far we have focused our efforts on placing roles in Australia’s largest companies. Now that we’ve proven the model, we’ll be expanding our target pool and will look to place candidates in government, startups and SMEs.”