VERGE Capital is a social finance program of Pillar Nonprofit Network, supported by many community collaborators who share our vision of a greener and more inclusive economy.

How should Verge Capital position itself for future growth? Should it charge for consulting services (if so,how much should social entrepenuers be paying?) AND/OR diversify by engaging in private, profit-motivated investments? Evaluate both options and their capacity to deliver social change

POTENTIAL INVESTMENTS Sri Lankan Foods Sri Lankan Foods operated three related businesses: a Sri Lankan restaurant, a catering business, and a granola production facility. There were currently no other Sri Lankan restaurants in the city of London offering food selections like those offered by Sri Lankan Foods. Dhriti Tamang, the business owner, was a hands-on operator who worked hard to ensure her business stayed sah true to its intention to sell authentic Sri Lankan food and healthy meal options. She had over 12 years' experience working in the restaurant industry in London and had been cooking for more than 23 years, creating Western and Sri Lankan cuisine as well as dishes from many other cultures. Tamang had been operating the first location of Sri Lankan Foods since November 2008 and was interested in adding a social impact element to the business. She wanted to provide opportunities for newcomers who had been in Canada for less than five years and were not proficient in English. She would offer these people employment for periods of six to 12 months. The business would pay these employees minimum wage during this time. While Tamang had connections with members of the Sri Lankan community who could work at her establishment, she had neither experience in executing a social impact strategy nor experience in running a large business. Currently, she had one permanent employee, who assisted with administration The restaurant, in a busy marketplace in the heart of downtown London, was open to customers only on Saturdays. During the week, the space was used for granola production. The total available space was relatively small (about 14 square metres) and did not provide adequate space for serving customers. The funds would be used to retrofit a new location in London that would function as a restaurant and a distribution outlet for the granola. The newly opened site would have more room to serve customers (about 63 square metres). The business had requested $30,000 from Verge Capital; the owner would provide an additional $20,000 for a total capital investment of $50,000 (see Exhibit 8). Material Impact In 2011, Paulina Moran started to collect used textbooks from her classmates at Western University's Ivey Business School in London and to resell the books to raise funds for the Canadian Cancer Society. Shortly after, when Moran was teaching in Chile and Guyana, she realized the students did not have access to the educational resources that were essential for academic success. She applied her previous program of selling used textbooks to raise funds to address the social need for improving South American students' access to academic resources; thus, Material Impact was born. Material Impact collected used textbooks and case study books from students on campuses and from Goodwill and Red Cross donation centres. It then sold 30 per cent of the books through Amazon.com Inc. (Amazon) and donated 60 per cent of the books to South American universities and the remaining 10 per cent to other non-profits. The books were sorted based on their condition and market value. The textbooks sent to South American universities had to have been published within the past 10 years and be in good condition. The books that did not meet the criteria for either online sales or donations to South America were sent for recycling. The organization leveraged a partnership with the southwestern Ontario organization Recycle with Purpose to pick up textbooks in the Greater Toronto Area. To move beyond southern Ontario, Material Impact would need to find a national partner that could help grow the organization's reach. Material Impact shipped books out of Burlington, Ontario, completing 80-85 per cent of its sales through Amazon by using the Fulfillment by Amazon service. This reduced the need to invest in warehousing and inventory storage facilities. Its books were listed online at a minimum value of $7.50. The organization was able to provide competitive pricing to consumers by utilizing software that checked comparable listings every 25 minutes. It was considering expanding into renting textbooks to students and using third-party logistics companies to handle intemational sales. Material Impact had no existing direct competitor in the Canadian marketplace with a similar social impact. Its closest competitor was the US-based company Reading with Purpose. Like Material Impact, this organization collected textbooks and novels that had been donated to non-profit organizations, and any books that the organization did not sell were donated to Books for Africa. A percentage of Reading with Purpose's profits was donated to literacy causes. In its first year of operations, Material Impact, which was located on 12 campuses across Ontario and worked with three different Goodwill and Red Cross partners, had collected 55,000 textbooks and generated revenues of $260,000. The business had donated 40,000 textbooks to two South American universities and $30,000 to student-led impact initiatives, invested $39,000 in microfinance loans, and reused and recycled 50,000 textbooks. The organization directed 60 per cent of the revenue from textbook sales toward textbook or monetary donations to a student-led charity. The organization was seeking $50,000 in debt financing from Verge Capital as well as additional funding from other sources to help finance their ambitious goals of making a positive impact. These funds would go toward recruiting staff for the core leadership team, developing logistic systems for use across the province, managing two warehouse operations, and recruiting essential warehouse employees. The team had achieved impressive growth in its first years of operations. However, the Verge Capital review panel was concerned about its sustainability and the feasibility of its aggressive future growth targets and annual objectives (see Exhibits 9 and 10). EXHIBIT 8: SRI LANKAN FOODS Envisioned Use of Funds (CA$) Item Kitchen Equipment Customer Seating Furniture Electrical and Plumbing Work Miscellaneous Work Total Cost 39,300 2,500 6,000 2,200 50,000 Sri Lankan Foods Income Statement (CA$) 2017 2018 2019 2020 (Projected) 2021 (Projected) 13,096 20,738 26,192 71,856 26,192 71,856 26,192 71,856 97,927 82,713 Revenue Catering Food Sales (Market) Food Sales (New Location) Total Restaurant Sales 101,190 273,600 328,500 328,500 111,023 204,641 371,648 426,548 426,548 25,730 25,730 51,460 Granola (Wholesale) Granola (Retail) Total Granola Sales 25,730 51,460 44,095 69,824 38,595 57,200 95,795 57,200 108,660 64,325 57,200 121,525 Total Revenue 162,483 274,466 467,443 535,208 548,073 48,274 50,326 Restaurant COGS Granola Costs Administrative Expenses Total Expenses 89,402 51,705 155,031 296,138 163,785 69,361 221,789 188,459 79,240 221,789 188,459 89,119 215,687 60,936 159,537 454,935 489,488 493,265 Net Income/(Loss) 2,946 (21,673) 12,508 45,720 54,807 EXHIBIT 9: MATERIAL IMPACT-FINANCIAL AND OPERATIONAL GOALS 2020 Goals Sales target: $1.2 million. Number of textbooks collected: 250,000. Textbook donations: 120,000. Expand to every major school in Ontario; have a total of 200 drop boxes. Review renting/selling textbooks through multiple platforms in the US market. Review selling e-textbooks on website. Donate tablets to students in South America. Create a sharing platform to enable students to share notes with students in developing countries. 2021 Goals Sales target: $3.6 million. Number of textbooks collected: 750,000. Textbook donations: 360,000. Expand into the United States; set up two to three regional US hubs. Monetize content-sharing platform. Target 20,000-30,000 digital notes from North American students. 2022 Goals Sales target: $11.6 million. Number of textbooks collected: 2,225,000. Textbook donations: 1,080,000. Become the leading social impact provider of affordable physical and digital educational material for students around the world. Develop a top-quality international team while developing Canada's social impact and start-up environment. Achieve sustainability of the content-sharing platform. Target 100,000 digital notes from North American students. POTENTIAL INVESTMENTS Sri Lankan Foods Sri Lankan Foods operated three related businesses: a Sri Lankan restaurant, a catering business, and a granola production facility. There were currently no other Sri Lankan restaurants in the city of London offering food selections like those offered by Sri Lankan Foods. Dhriti Tamang, the business owner, was a hands-on operator who worked hard to ensure her business stayed sah true to its intention to sell authentic Sri Lankan food and healthy meal options. She had over 12 years' experience working in the restaurant industry in London and had been cooking for more than 23 years, creating Western and Sri Lankan cuisine as well as dishes from many other cultures. Tamang had been operating the first location of Sri Lankan Foods since November 2008 and was interested in adding a social impact element to the business. She wanted to provide opportunities for newcomers who had been in Canada for less than five years and were not proficient in English. She would offer these people employment for periods of six to 12 months. The business would pay these employees minimum wage during this time. While Tamang had connections with members of the Sri Lankan community who could work at her establishment, she had neither experience in executing a social impact strategy nor experience in running a large business. Currently, she had one permanent employee, who assisted with administration The restaurant, in a busy marketplace in the heart of downtown London, was open to customers only on Saturdays. During the week, the space was used for granola production. The total available space was relatively small (about 14 square metres) and did not provide adequate space for serving customers. The funds would be used to retrofit a new location in London that would function as a restaurant and a distribution outlet for the granola. The newly opened site would have more room to serve customers (about 63 square metres). The business had requested $30,000 from Verge Capital; the owner would provide an additional $20,000 for a total capital investment of $50,000 (see Exhibit 8). Material Impact In 2011, Paulina Moran started to collect used textbooks from her classmates at Western University's Ivey Business School in London and to resell the books to raise funds for the Canadian Cancer Society. Shortly after, when Moran was teaching in Chile and Guyana, she realized the students did not have access to the educational resources that were essential for academic success. She applied her previous program of selling used textbooks to raise funds to address the social need for improving South American students' access to academic resources; thus, Material Impact was born. Material Impact collected used textbooks and case study books from students on campuses and from Goodwill and Red Cross donation centres. It then sold 30 per cent of the books through Amazon.com Inc. (Amazon) and donated 60 per cent of the books to South American universities and the remaining 10 per cent to other non-profits. The books were sorted based on their condition and market value. The textbooks sent to South American universities had to have been published within the past 10 years and be in good condition. The books that did not meet the criteria for either online sales or donations to South America were sent for recycling. The organization leveraged a partnership with the southwestern Ontario organization Recycle with Purpose to pick up textbooks in the Greater Toronto Area. To move beyond southern Ontario, Material Impact would need to find a national partner that could help grow the organization's reach. Material Impact shipped books out of Burlington, Ontario, completing 80-85 per cent of its sales through Amazon by using the Fulfillment by Amazon service. This reduced the need to invest in warehousing and inventory storage facilities. Its books were listed online at a minimum value of $7.50. The organization was able to provide competitive pricing to consumers by utilizing software that checked comparable listings every 25 minutes. It was considering expanding into renting textbooks to students and using third-party logistics companies to handle intemational sales. Material Impact had no existing direct competitor in the Canadian marketplace with a similar social impact. Its closest competitor was the US-based company Reading with Purpose. Like Material Impact, this organization collected textbooks and novels that had been donated to non-profit organizations, and any books that the organization did not sell were donated to Books for Africa. A percentage of Reading with Purpose's profits was donated to literacy causes. In its first year of operations, Material Impact, which was located on 12 campuses across Ontario and worked with three different Goodwill and Red Cross partners, had collected 55,000 textbooks and generated revenues of $260,000. The business had donated 40,000 textbooks to two South American universities and $30,000 to student-led impact initiatives, invested $39,000 in microfinance loans, and reused and recycled 50,000 textbooks. The organization directed 60 per cent of the revenue from textbook sales toward textbook or monetary donations to a student-led charity. The organization was seeking $50,000 in debt financing from Verge Capital as well as additional funding from other sources to help finance their ambitious goals of making a positive impact. These funds would go toward recruiting staff for the core leadership team, developing logistic systems for use across the province, managing two warehouse operations, and recruiting essential warehouse employees. The team had achieved impressive growth in its first years of operations. However, the Verge Capital review panel was concerned about its sustainability and the feasibility of its aggressive future growth targets and annual objectives (see Exhibits 9 and 10). EXHIBIT 8: SRI LANKAN FOODS Envisioned Use of Funds (CA$) Item Kitchen Equipment Customer Seating Furniture Electrical and Plumbing Work Miscellaneous Work Total Cost 39,300 2,500 6,000 2,200 50,000 Sri Lankan Foods Income Statement (CA$) 2017 2018 2019 2020 (Projected) 2021 (Projected) 13,096 20,738 26,192 71,856 26,192 71,856 26,192 71,856 97,927 82,713 Revenue Catering Food Sales (Market) Food Sales (New Location) Total Restaurant Sales 101,190 273,600 328,500 328,500 111,023 204,641 371,648 426,548 426,548 25,730 25,730 51,460 Granola (Wholesale) Granola (Retail) Total Granola Sales 25,730 51,460 44,095 69,824 38,595 57,200 95,795 57,200 108,660 64,325 57,200 121,525 Total Revenue 162,483 274,466 467,443 535,208 548,073 48,274 50,326 Restaurant COGS Granola Costs Administrative Expenses Total Expenses 89,402 51,705 155,031 296,138 163,785 69,361 221,789 188,459 79,240 221,789 188,459 89,119 215,687 60,936 159,537 454,935 489,488 493,265 Net Income/(Loss) 2,946 (21,673) 12,508 45,720 54,807 EXHIBIT 9: MATERIAL IMPACT-FINANCIAL AND OPERATIONAL GOALS 2020 Goals Sales target: $1.2 million. Number of textbooks collected: 250,000. Textbook donations: 120,000. Expand to every major school in Ontario; have a total of 200 drop boxes. Review renting/selling textbooks through multiple platforms in the US market. Review selling e-textbooks on website. Donate tablets to students in South America. Create a sharing platform to enable students to share notes with students in developing countries. 2021 Goals Sales target: $3.6 million. Number of textbooks collected: 750,000. Textbook donations: 360,000. Expand into the United States; set up two to three regional US hubs. Monetize content-sharing platform. Target 20,000-30,000 digital notes from North American students. 2022 Goals Sales target: $11.6 million. Number of textbooks collected: 2,225,000. Textbook donations: 1,080,000. Become the leading social impact provider of affordable physical and digital educational material for students around the world. Develop a top-quality international team while developing Canada's social impact and start-up environment. Achieve sustainability of the content-sharing platform. Target 100,000 digital notes from North American students