Fulcrum Funds, LLC Social Impact Assessment Peter Kennedy, Founding Partner

1. Fulcrum Funds, LLCSocial Impact AssessmentPeter Kennedy, Founding Partner Final Presentation Steven Aronowitz, JD ‘08Michael Pearce, MBA ‘08 May 2, 2007

2. Agenda • Overview • Project Scope • Background on the industry • Social Impact Assessment Options • Applying to Fulcrum Funds • Metrics • Illustrative example • Implementation and Conclusions

3. Project Overview • Client: Fulcrum Funds, LLC • Targeted $100m private equity fund focused on investments primarily in the healthcare industry • Currently fundraising – seeking to offer potential investors both financial and social return • Scope: • Refine methodology and criteria to measure and report on social impact of portfolio companies

4. Blended value investment • CSR of the investment management sector • Investors increasingly want to invest their values – potential strategic differentiator for managers • One in ten investment dollars in the US is managed in accordance with some type of social criteria (Social Investment Forum) • Private equity relatively uncharted territory • At least 59 funds with assets over $2.6 billion (RISE project) • Arguably a better vehicle for blended value investment since public company issues are removed

5. You’re looking for the Holy Grail!!! Social Impact Assessment • Investment managers historically judged only financial performance • How well they track an index, what return they provide • If they are going to have social investment criteria as part of their mandate, it needs to be done in a systematic manner • Desire to quantify social impact • Huge challenge defining standards

6. The Quest for the Holy Grail

7. SIA Industry Example Social Return on Investment • Calculate an absolute dollar value of social return on investment • Select specific criteria to examine • Company by company basis (specific product impact) • General metrics (environment, job creation, average wage, etc.) • Investment decisions based on social projections • Able to monitor social performance versus projections • Advantages • Provides absolute numerical value • Removes ambiguity • Disadvantages • Doesn’t have impact relative to similar companies • Many assumptions required to make calculation

8. SIA Industry Example Relative Analysis: Stakeholder Quotient • Analysis based on demonstrating relatively strong performance • Criteria: • Standardize categories of comparison and apply to all companies within a sector • Maintain baseline industry standards to measure against • Advantages • Standardizes for all portfolio companies • Demonstrates best-in-class versus individual performance • Disadvantages • Does not have absolute dollar value • Perhaps less relevant for projected social impact

9. SIA Industry Example Fund Scorecard • Compare Fulcrum Funds to other similar funds • Criteria: • Stakeholder Quotient and/or • Social Return on Investment • Compare with healthcare sector funds • Advantages • Apples to apples • Speaks directly to investor choices • Disadvantages • Difficult to get data from other funds • Calculation may be arbitrary

10. Possible Hybrid Model • To combine the advantages of both the absolute dollar value (SROI) and relative scorecard (SQ), calculate both Average Medical Device Fund – Average of rest of industry Fulcrum Funds

11. Key Insights from Industry Research • Identifying specific 2nd bottom line goals is most important initial step • PCV is focused on three specific criteria: capital to underserved geographies, jobs creation and minority/women-led businesses • CalPERS California Initiative Program has the specific goal of investing in California’s underserved areas • Analysis that shows social impact relative to industry norms and baseline metrics has the most credibility • Demonstrating why a portfolio company has superior social potential relative to peers, not in absolute terms • However, sourcing data about private comparables to do a relative analysis will be a challenge • Quantifying social impact received mixed reviews in terms of value and ability to measure • Absolute dollar value versus “score”

12. Linking Insights to Fulcrum’s Priorities • Fulcrum’s priority is to quantify impact in terms of dollars • Need to communicate with investors • Looking for corresponding value to financial return • Strong preference for quantitative data • Impact on what? Utilize first insight and identify Fulcrum’s values • Create strategic focus on existing core competency or develop a competency • Trade offs between impact goals requires clear priorities • Universe of potential impact is so broad it is difficult to measure “You have to measure what is important to your client, any metric must have meaning for them.” “We have to choose between solar panel companies focused on fair labor standards or focused on toxics recycling. Both are important goals but which matters most to us now?” Sara Olson, SVT Group Brian Dunn, Aquillian Investments

13. Fulcrum’s Social Impact Focus • Fulcrum Fund has identified three main areas to focus the Social Impact of portfolio companies • Product – the impact product / service • Environmental – sustainable operations • Community – employee practices, • donations, etc.

14. Measuring Impact on Fulcrum’s Focus • Identifying expected results from reaching general goals • Indicators of success • Measurable outcomes • Baseline comparisons • Deciding on specific metrics • Assigning dollar value to each outcome • Incorporate Fulcrum’s existing portfolio metrics • Linking to established and accepted measurements “Where there’s smoke, there’s fire.”

15. Detailed Metrics • Product Impacts • Social value of access to care in previously underserved areas • Value of one additional Dr. visit per year • Value of availability of medical consultation • Value of hospital care being closer (a $ per mile closer calculation) • Value of primary physician being closer ($ per mile or $ per increased visit) • Value of reducing costs to Medicare • Value of in home care v. hospital care • Social value of product impact • Increased mobility • Social value of longer life • Social value of higher quality life • Novel products that are increasing quality of life, but also lowering costs short term and long term • Social value created by product after patent period ends – option value potential • Environmental Impacts • Reduction in carbon footprint • Use of environmentally sound transportation • Increase in recycling/reduction in waste • Sustainability of facilities construction and renovation • Smart growth land use or redevelopment (infill) • Community Impacts • Under employed population employees • Higher quality jobs/higher wages/better benefits than traditionally available • Charitable/in-kind donations • Company by company • Support for local civic activities

16. Fulcrum’s Metrics in Action Fulcrum Hypothetical Investment – Rural Healthcare Facility • Rural Healthcare Facility providing • 5 new physicians; 10 new nurses • Population of 25,000 within service area • Within 75 mile radius from facility • Provides general family practice, emergency care, in-home nursing care • $5,000,000 required investment • SIA Components • Product: Improved access to healthcare • Environmental: Better practices for travel • Community: Contribution to local economy

17. Product Metrics – Rural Healthcare • Public Health Service classifies counties as primary care shortage areas if they have more than 3,000 persons per physician • Nationally, residents of the most rural counties have the: • Highest death rates for children and young adults • Highest mortality from ischemic heart disease and suicide • Higher percents of adults with chronic health conditions • Highest obesity rates • Lowest Physician rates

18. Environmental Metrics • Carbon emission reduction value - $7.75 per ton • Market price from range of carbon offset prices • Asses Clinic Carbon Footprint • Clinic Emissions • Energy, supplies, shipping, labs • Home visits by caregivers • Employee commute • Identify carbon reduction areas • High gas mileage vehicles for home visit staff • Energy efficient appliances and lighting • Paperless filing systems • Compare reduced emission rate with previous or standard carbon output and calculate value of carbon saved

19. Community Metrics • Rural physicians are key young professionals • Various studies to analyze the economic impact of additional doctors in a rural community • Additional jobs created • Economic multiplier effect of doctor/nurses salaries

20. Total SROI of Investment • Combine the various impacts • Calculate total return on investment for defensible period • $$$ value • SROI

21. Implementation Guidelines • Focus on refining metrics • Envision a “desired state,” and work backward to find the statistics that will support that goal • Constantly monitor and update • Unlike financial ROI, SIA will and should continue to evolve • Participate in industry consensus building • SVT open source database of criteria being built • 3rd party auditor to validate the calculated social impact • Especially given the lack of transparency of the private equity market • Including direct conversations with portfolio companies

22. Conclusion - Measuring Social Impact in $$$ • Powerful tool • Absolute value • Accurate cost benefit analysis • Accountability • Difficult to implement • Endlessly spreading ripples • Separating impact from turbulence • Non-dollar impacts • One step at a time • Many people are working on the problem • Creating database of metrics • This is the start

23. Value Added to Client • Understanding of Competitive Landscape • Difficult to approach potential competitors on what might be considered a differentiating competency • Expert insight • SIA structure best suited given Fulcrum’s goals • New SIA in practice • Verifiable data to apply to portfolio companies immediately • New contacts • Like-minded professionals with a vested interest in seeing Fulcrum succeed

24. Value to Students • Understanding SIA field • Speaking with giants in the industry • Learning about the many models for measuring • Important and growing area of investing • Exploring early dollar valuation of SROI • See how knowledge builds over time • Joining debate over why and how to value • Working to establishing standards • Mike got an internship!!! “Just another brick in the wall.”

25. Questions???

26. Appendix Project Scope - Detail Contacts Resources

27. Scope of Project / Timeline • The Project was divided into three phases • Phase 1: Survey industry trends and standards for SIA • Phase 2: Identify key metrics and refine existing SIA • Phase 3: Analyze results of new SIA with applied to current portfolio company

28. Project Scope - Detail • Stage 3: Application to an existing or potential Fulcrum investment • Apply improved Fulcrum social evaluation to an investment. • Compare improved results with results from prior Fulcrum evaluation system. • Analyze the impact of improvements. • Confirm applicability of evaluation to calculate a total social impact value for Fulcrum’s fund • Additional: • Consider organizations best suited to developing and maintaining industry-wide social impact measures • Stage 1: Research and analysis of Fulcrum’s current evaluation system. • Step by step breakdown of Fulcrum’s screening and forecasting system. • Comparison of Fulcrum to industry best practices. • Analyze specific key metrics that are used by social investors industry-wide • Analysis of purpose and effectiveness of Fulcrum’s evaluation. • Identify specific key metrics that are applicable to Fulcrum’s industry focus (e.g. rural or low income healthcare, clean tech) • Stage2: Suggestions for improvements. • Identify key areas of improvement for evaluation system in methodology and specific criteria. • Suggest modifications to improve Fulcrum’s social measurement accuracy and efficacy for specific criteria • Develop a methodology to approach social impact assessment that can be applied broadly

29. Contacts • Individual Interviews • Brian Dunn, Aquillian Investments • Lloyd Kurtz, Nelson Capital Management • Yvonne Lu, Long Life Clinic Network • Sarah Olsen, SVT Group • Jason Oppenheimer, Pax Water • Beth Sirull, et al., Pacific Community Ventures • Pierre Trevet, Innovest • Other firms – various individuals • Acumen Fund • Bay Area Equity Fund • Good Capital • REDF

30. Key Resources • GSVC website: http://socialvc.net/index.cfm?fuseaction=Page.viewPage&pageId=58 • RISE Project: http://www.riseproject.org/ • UNC: http://www.ccc.unc.edu/documents/cccDoubleBottomLine.ppt • REDF: http://www.redf.org/resources-general.htm#sroi