Capitalising Kingdom Companies

Craig Shugart

Bangalore, January 2015

“KCs” are real, commercial enterprise which are intentionally missional and transformational.

“BAM” is authentic commerce which proclaims, demonstrates, and extends the Kingdom of God.

Kingdom companies intentionally operate towards a quadruple bottom line.

Begin with a robust theology of wealth and a

biblical motivation for Kingdom company

investing.

Our focus is on BAM in the SME sector.

The Economic Development Spectrum

Relief & Development Micro-credit Small to medium enterprise (SME)

Overseas Private Equity (OPEs)

Well-establishedGrowing or establishedLargely vacant

Multi/Transnationals (MNCs)

This is the primary BAM domain

Strategically integrate 7 kinds of “patient capital”.

Humancapital

Intellectualcapital

Socialcapital

Spiritualcapital

Financialcapital

Naturalcapital

Infrastructuralcapital

Capitalise the whole business sequence.

Inputs Business processes Outputs

- Marketing and sales- Supply chain- Production

- Human Resources- Financial Operation

- General Administration- Governance

- Risk Assessment

- Opportunity- Innovation

- Access to markets- Ownership

- Leadership & Management

- Labour- Patient capital- Raw material

- P P & E- Infrastructure

- Training and mentoring

- Quality goods and services with a

transformational, missional impact

- Jobs with dignity- Taxes

- Institutions for the public good

- Profit and wealth- Waste and other

impact

1. Capital structure – Equity/Debt

2. Capital budgeting – Income/Expenditure

3. Capital at work – Cash flow

4. Whose Capital – yours and theirs – Assets, Liabilities & Sources of Finance

5. Surplus Capital – Profit

6. Capital search – the key questions: “what, why, when, where, who, how?”

7. Honorable Capital – Moral considerations

Seven financial capital challenges that can destroy your business.

Financial capital is to your business what blood is to your physical body.

Capitalise your business according to its stage of life.

1. Start up (typically -2 → 2+ years)

2. Growth (typically 2+ → +/- 7 years)

3. Established (typically 8 years and more)

Each stage in the life-cycle will have itsparticular capital needs and metrics.

Personal savings, loans against collateral, credit card“The three F’s”, or “Love capital” – friends, family, fools

Angel investorsVenture capital

Mezzanine lenders – debt with equity characteristicsInstitutional investors/lenders

Donor/Grant fundingRetained earnings

Sources of Financial Capital

Matching Sources of Capital with Life-cycle StageStart-up

(-2 to + 3 yrs)

Growth

(+3 – 7 yrs)

Mature

(>7 years)

Personal Funds as Equity and/or Debt (terms most

lenient, but capacity limited) ! X

Friends, Family and “Fools” as Equity and/or Debt

(terms generally lenient, capacity limited) X

“Angel” investors (using own cash as Equity and/or

Debt, firm terms, in addition often provide counsel) X

Venture Capital (Equity), ownership, exit strategy,

management influence, returns & growth are key

issues, specialised sectors (institutional vs. B4T VC)! X

Mezzanine finance (debt with equity characteristics,

cash flow, longer time horizon, repeated cycles) X

Institutional investors/lenders (more aggressive terms,

require security/collateral, rates/returns variable) X !

Donor/grant funding (transparency, some conditions;

grantors may require return) ! !

Retained earnings (most flexible, combined with

strategic dividend policy) X !

Capitalise with the right kind of investor.

• Investor expectations vary, shape their behaviours and can significantly impact your business => Research and communicate carefully.

• Investors are looking closely at managerial character traits, work commitments and track record => Stay on target.

• Honourable business dealings are paramount => Practice integrity above all. Communicate, communicate, communicate.

• Investors vary in their degree and manner of influence and control => Be careful and clear in your choices.

• Investors have variable tolerances for, and management approaches to risk => Understand and rank accordingly.

• Investors are looking for returns – of capital, on capital, impact => Document, act with prudence and truth.

1. Risk Appetite/Tolerance

2. Risk Analysis

• Type

• Likelihood - LMH

• Impact - LMH

3. Risk Management

4. Risk & Reputation

Consider Capital at Risk

Market

Supply Chain

Financial

“The Blind Side Affect”

Safety & Security

Relational

Legal, political, religious

Key personnel

Remember: Lightning can strike twice!

Catastrophic failure usually happens because of a cascading sequence of factors.

ciscan@securenym.net