This document is authorized for use only in Dr Ali Sheikhbahaei's BFC3999 S1 2023 at Monash University from Feb 2023 to Aug 2023.


W20583

VERGE CAPITAL: INVESTING FOR SOCIAL IMPACT


Sandy Chen, Sarangen Sathasivam, and Andrew Newton wrote this case under the supervision of Diane-Laure Arjaliès solely to
provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial
situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

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Copyright © 2020, Ivey Business School Foundation Version: 2020-07-14



It was September 2019, and it had been a particularly long day for the committee from Verge Capital, an
impact investing firm based in London, Ontario, whose mission was to help social entrepreneurs from the
community. The committee had just reviewed proposals from two social enterprises, Sri Lankan Foods and
Material Impact, that were seeking financing to grow. Andre Vashist, Verge Capital’s social finance
manager, had to decide which social enterprise should be offered a loan of CA$30,000.1 Traditional banks
had generally been unwilling to provide financing to social enterprises, which were usually deemed high-
risk ventures. Although both businesses had their strengths, determining whether their respective owners
had the expertise needed to sustain the businesses in the long term was challenging. Vashist sat back in his
chair and closed his eyes. He knew that deciding which organization Verge Capital should lend money to
was significant. He sat up to review his notes on both business plans.


SOCIAL ENTERPRISES AND IMPACT INVESTING

Social enterprises and impact investing had emerged as innovative ways to tackle societal problems while
simultaneously providing a financial return for investors. Social enterprises were businesses that leveraged
business strategies and practices to achieve measurable impacts on their triple bottom lines: financial, social,
and environmental.2 They could be either non- or for-profit enterprises, and they balanced social impacts
with financial sustainability (see Exhibit 1).

While some investments in social enterprises still came in the form of grants and donations, impact
investing—where investors sought financial returns as well as social returns inherent in the activities of the
financed organization—was becoming a significant source of capital. The ultimate goal of impact investing
was to make a meaningful difference in some of the world’s daunting social and environmental problems
while generating financial returns (see Exhibit 2). Impact investing had been growing rapidly in Canada,
increasing 81 per cent between 2016 and 2018, to over $14.75 billion.3 The challenge for most impact
investors was determining how the impact of these investments should be quantified.


1 All dollar amounts are in Canadian dollars.
2 “Criteria,” Pillar Nonprofit Network, accessed May 9, 2020, https://pillarnonprofit.ca/criteria.
3 Responsible Investment Association, 2018 Canadian Impact Investment Trends Report, February 2019, accessed April 22,
2020, www.riacanada.ca/research/2018-impact-trends-report/.
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There were various investment models within the broader category of impact investing—from global to
more localized models. For example, a global impact investing model included business support to
enterprises that supported and uplifted people at the bottom of the wealth pyramid around the world.
Alternatively, a localized, “place-based” impact investing pool provided a means for allocating local
investment, which in turn generated positive effects in the community that was home to both investors and
the enterprise in which they invested.4

LONDON, ONTARIO, CANADA5
London, a city in southwestern Ontario with a population of 404,699,6 was halfway between Detroit,
Michigan, and Toronto, Ontario. It was known as a regional epicentre for medical research, education,
insurance, manufacturing, and information technology and was home to 3M Canada, Goodlife Fitness
Centres Inc., Western University, Fanshawe College, London Life Insurance Company, Libro Credit Union
Limited, and Labatt Brewing Company Limited. In 2016, London’s unemployment rate was 7.9 per cent,
and 9.7 per cent of workers were self-employed.7 The top three occupation categories for Londoners were
sales and service (25.6 per cent); business, finance, and administration (14.7 per cent); and education, law,
social, community, and government services (13.5 per cent). The city had more than 1,800 non-profit
organizations and charities, and 45.3 per cent of its citizens volunteered, contributing more than $600
million in value every year.
Because of the renowned universities and colleges in the city, London was a transient city—a college town
that was bustling during the school year but quiet during the summer and winter holidays. Canada’s
education system was ranked as one of the best in the world,8 and education was critically important to
London’s character. Canada was home to many migrant students, and children of new Canadians integrated
quickly into the Canadian school system and performed at the same high level as their classmates. In 2016,
one in five people in the London region was foreign born, with the largest numbers coming from Europe,
Asia, the Middle East, and Africa.9 As a result, London had a diverse population, with 16 per cent of its
inhabitants self-identifying as members of visible minorities and almost half of these people identifying as
South Asian, Chinese, Black, or Arab.10

VERGE CAPITAL
Based in London, Ontario, Canada, Verge Capital was a place-based impact investing organization created
in 2015 to connect aspiring local entrepreneurs with funding to support initiatives with social or
environmental missions that benefited local communities. Verge Capital operated a social enterprise loan
fund that provided social enterprises with loans up to $100,000. The organization provided access to
potential investors and expert business advice to early-stage businesses, specifically those with high growth
potential. Its interest rates were lower than those offered by traditional banks, which typically did not lend
to these types of businesses because they were considered high risk. Although Verge Capital considered all
applicants, its review panel determined which applicants were eligible to be shortlisted for funding
according to Verge Capital’s lending process (see Exhibit 3).


4 “Breakthrough Fund,” Verge, accessed April 22, 2020, www.vergecapital.ca/funds/breakthrough-fund.
5 City of London (website), accessed May 9, 2020, www.london.ca.
6 “Census Profile, 2016 Census,” Statistics Canada, November 29, 2017, accessed May 11, 2020,
https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/prof/index.cfm?Lang=E.
7 Ibid.
8 Sean Coughlan, “How Canada Became an Education Superpower,” BBC News, August 2, 2017, accessed April 22, 2020,
www.bbc.com/news/business-40708421.
9 “Census Profile, 2016 Census,” op cit.
10 Ibid.
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Verge Capital leveraged the support and input of local stakeholders to address two core issues for the
community: (1) improving access to capital and (2) building momentum to support the increasing cultural
preference for social impact investments (see Exhibit 4). Addressing these two core issues ensured that the
Verge Capital portfolio contributed to achieving the United Nations (UN) Sustainable Development Goals—
the 17 goals adopted by all UN member states in 2015—which offered common strategies and goals for
countries to build peaceful and prosperous futures for both their people and the planet (see Exhibit 5).11

Access to capital was critical to enabling social entrepreneurs to turn their business ideas into reality. It was
also essential to continue to build momentum to allow more investors to see the value of impact investing
in the communities in which they lived. By leveraging these changes, Verge Capital would be able to make
a lasting difference in the community through social impact investing.

On the investors’ end, Verge Capital worked to enable investors to easily locate, review, and invest in
initiatives that provided both financial and social returns. By acting as an intermediary between investors
and social entrepreneurs, Verge Capital was building a social finance ecosystem that fostered the growth of
local ventures seeking to create social and environmental change. At the same time, Verge Capital engaged
with business professionals who could serve as volunteer mentors and coaches, providing them with
opportunities to tackle some of the community’s toughest social and environmental challenges. This
increased community awareness about the value of impact investing.

Verge Capital had already distributed capital to various social enterprises within the London community.
The firm worked with entrepreneurs to provide flexible repayment terms and interest rates. It had provided
For the Love of Laundry with a three-year $10,000 loan at 4.7 per cent interest, which required interest-
only payments over the first year, providing cash flow to support the establishment of the business during
that period. For the Love of Laundry used the proceeds from its sales of environmentally friendly laundry
products to support laundry services for low-income individuals. Verge Capital had also provided Old East
Village Grocer with a five-year loan of $100,000 at 4.7 per cent. Old East Village Grocer was a not-for-
profit grocery store that employed adults with disabilities while offering economically accessible fresh
products to impoverished populations. Finally, it had provided Cyber Smart Canada, which taught students
about digital safety and technology, with a two-year loan of $12,500 at 4.7 per cent.

Verge Capital was not currently generating enough returns from its investments to sustain and grow its
operations. The program hoped to refine its mechanisms to make the vetting process for investors easier
and provide more substantial financial and social returns. Another goal was to have a team of business
consultants who could provide social enterprises with expertise and help them more quickly become ready
to work with investors.


IMPACT ASSESSMENT METRICS

The biggest challenge for impact investors was measuring and comparing the positive social and environmental
effects or impacts of the investments. There were no universally accepted metrics because of variations between
sectors and regions. Many social enterprises used their own success metrics to measure impact, which not only
made it challenging to compare ventures but also created ambiguity regarding the credibility of the metrics.
Furthermore, metrics continuously needed to be adapted based on the stage of each individual investment. Lastly,
measuring impact was a costly process that required extensive data collection and analysis. Many social
entrepreneurs simply did not have the resources to invest in such activities.

11 “Sustainable Development Goals,” United Nations, accessed April 11, 2020,
https://sustainabledevelopment.un.org/?menu=1300.
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Although no industry standards existed, the Impact Reporting and Investment Standards (IRIS) rating
system, implemented by rating agencies such as the Global Impact Investing Rating System, was commonly
used (see Exhibit 6). IRIS metrics were typically incorporated into other measurements, including social
return on investment (SROI). One weakness of these metrics was that they accounted only for outputs,
while investors were more interested in monetization.


Impact Reporting Investment Standards

IRIS, created by the Global Impact Investing Network, was widely accepted to provide accurate and reliable
impact investing assessments that avoided “impact washing.”12 Verge Capital currently used IRIS.

Social Return on Investment

SROI attributed a financial value to environmental, social, and governance factors that might not typically
be considered or reflected under traditional financial statements and valuations. SROI considerations could
lead to improved corporate stewardship, planning, and project decisions. Although SROI assigned
monetary value to social impact, at its core, its main driver was not financial gain but the positive output
from business operations.13

SROI calculations could include outcomes such as improved labour skills for employees; new jobs in
economically ignored communities; environmental restoration, which might improve insurance companies’
bottom lines; carbon footprint offset initiatives; and wildlife protection and rehabilitation.14

Verge Capital Investment Decision Matrix

When considering the viability and scalability of a business venture, Verge Capital’s review panel used an
investment decision matrix that included the following sections: character, capacity or risk analysis, market
conditions, and financial and social impact (see Exhibit 7). Each member of the panel provided a score for
each category, and the combined scores were used to assess whether the loan was approved.

Assessments of character examined the background profile of the management to ensure that the
entrepreneur had the skills or support from advisers to be able to execute the business plan successfully.
Assessments of capacity examined whether the operational and legal considerations were realistic. The
review panel also completed a risk analysis to determine whether the entrepreneur had conducted an
adequate risk analysis of their own and whether there were contingency plans in place.

The panel also reviewed the market conditions to see if the business plan was achievable. It considered
competitors and barriers that might prevent the business from being successful. The panel expected that the
plan would identify ways to mitigate these threats or convert them into opportunities. The financial review
examined whether the capital was adequate for the business. It also studied default risk and reviewed

12 Impact washing was when a company or fund made impact-focused claims in bad faith without truly having any
demonstrable positive social or environmental impact. Peter O’Flynn and Grace Lyn Higdon, “Is Participatory Impact Investing
the Antidote to ‘Impact Washing’?,” Institute of Development Studies, September 19, 2019, accessed June 15, 2020,
www.ids.ac.uk/opinions/is-participatory-impact-investing-the-antidote-to-impact-washing/; IRIS+ (website), accessed April 22,
2020, https://iris.thegiin.org/.
13 Ross Millar and Kelly Hall, “Social Return on Investment (SROI) and Performance Measurement, Public Management
Review 15, no. 6 (2013): 923–941.
14 Ibid.
Page 5 9B20M135



historical capital usage to see whether Verge Capital should provide further financing. Finally, the panel
reviewed the social and environmental impact to see if this was incorporated into the plan in a meaningful
way that would address gaps or needs within the community.


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 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.
Page 6 9B20M135



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 international 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).


DECISIONS FOR VERGE CAPITAL

Vashist knew that both business models aligned with Verge Capital’s mandate. However, he needed to
choose just one. How sustainable were these businesses, given current market conditions? Were there more
comprehensive criteria that Verge Capital should consider before investing? Could the company invest in
both businesses, ensuring that its financial portfolio was diversified to protect from loan failures?

Furthermore, Verge Capital was facing questions about its own growth. Should social entrepreneurs be
paying for the consulting services Verge Capital was providing? If so, how much should the social
entrepreneurs be paying? On a macro level, could private, profit-motivated investments deliver permanent
social change?


Ivey Business School gratefully acknowledges the generous support of the CPA-Ivey
Centre for Accounting & the Public Interest in the development of this case.
Page 7 9B20M135



EXHIBIT 1: SOCIAL IMPACT AND FINANCIAL SUSTAINABILITY MATRIX
High











Low


Low High




Financial Sustainability

Source: Created by the case authors.

EXHIBIT 2: IMPACT INVESTING ECOSYSTEM AND MARKET SEGMENTS

Supply Products Intermediaries Demand

Investment
providers, with
terms

Channels for
matching capital
with investment
opportunities

Means of matching
supply with
demand

Investment
seekers, with
unique purposes
Impact Measurements
What impact is created?
Government Engagement
How can government enable the marketplace?
Leadership
Who is providing leadership to the nascent field?
Source: Source: Created by the case authors.

EXHIBIT 3: VERGE CAPITAL’S LENDING PROCESS

Step 1:
Inquire
Step 2:
Meet
Step 3:
Apply
Step 4:
Pitch
Step 5:
Finance
Step 6:
Report
Enterprise Enterprise Selected Selected Approved Enterprises
submits an personnel enterprises enterprises enterprises report on
expression of meet with apply, with are invited to receive capital social and
interest to Verge Capital Verge Capital pitch to the and ongoing financial
Verge Capital. staff to explore coaching. review panel. support. results.
fit and
expectations.
Source: Adapted by the case authors from “How It Works,” Verge Capital, accessed May 9, 2020, https://vergecapital.ca/funds.
So
ci
al
Im
pa
ct




Page 8 9B20M135



EXHIBIT 4: PARTNERS AND COMMUNITY STAKEHOLDERS ENGAGED WITH VERGE CAPITAL
Lina Bowden, lead volunteer consultant

Andre Vashist, social finance manager

Lead/Governing Group
• Pillar Nonprofit Network (program manager and backbone organization)
• London Community Foundation
• United Way Elgin Middlesex
• Sisters of St. Joseph
• Libro Credit Union
Supporters and Engaged Community Organizations and Individuals
• London Small Business Centre
• Ivey Business School
• Emerging Leaders
• Business Help Centre/Community Futures Development Corporation of Middlesex County
• City of London
• Westminster College Foundation
• Good Foundation Inc.
• Westany Holdings
• Pathways Skills Development
• Johnny Fansher Financial
• Jens Stickling
• Goodwill Industries
• The Old East Village Business Improvement Area
• Habitat for Humanity
• Devonshire Financial (London) Inc.
Funders
• Pillar Nonprofit Network (in kind)
• United Way Elgin Middlesex
• Sisters of St. Joseph
• London Community Foundation
• Libro Credit Union (in-kind administration and 25 per cent investment in each approved loan)
• Ursuline Sisters of Chatham
• Government of Ontario, Ministry of Economic Development, Employment and Infrastructure
• Lina Bowden and Lynn Davis (Material Impact investors)
Source: Compiled by the case authors based on data from Verge Capital (website), accessed May 9, 2020,
https://vergecapital.ca.
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EXHIBIT 5: THE 17 UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS
• No Poverty
• Zero Hunger
• Good Health and Well-Being
• Quality Education
• Gender Equality
• Clean Water and Sanitation
• Affordable and Clean Energy
• Decent Work and Economic Growth
• Industry, Innovation, and Infrastructure
• Reduced Inequalities
• Sustainable Cities and Communities
• Responsible Consumption and Production
• Climate Action
• Life below Water
• Life on Land
• Peace, Justice, and Strong Institutions
• Partners for the Goal
Source: Compiled by the case authors from “Sustainable Development Goals,” United Nations, accessed April 11, 2020,
https://sustainabledevelopment.un.org/?menu=1300.

EXHIBIT 6: GLOBAL IMPACT INVESTING RATING SYSTEM RATINGS INPUTS
The Global Impact Investing Rating System is an agency that reviews the following topics when rating a
company’s impact, assigning weightings for each topic as noted below. The total points are added up to a
maximum of 200 points.
• Governance (7.5%)
• Workers (25.0%)
• Community (27.5%)
• Environment (10.0%)
• Socially and Environmentally Focused Business Models (30.0%)
Source: Adapted by the case authors from “Company Ratings Methodology,” B Analytics, accessed June 15, 2020, https://b-
analytics.net/articles/company-ratings-methodology.

EXHIBIT 7: INVESTMENT DECISION MATRIX USED BY VERGE CAPITAL

Section Score Minimum (50%) = 50/100
Average (70%) = 70/100
Above Average (80%) = 80/100
Character (Management Profile) /13
Capacity (Business Plan
Summary) /20
Conditions (Risk Analysis/Market
Overview) /14
Capital (Financial Overview) /13
Impact (Social/Environmental) /35
The Ask /5
Total Score: /100
Source: Created by the case authors.
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EXHIBIT 8: SRI LANKAN FOODS

Envisioned Use of Funds (CA$)

Item Cost
Kitchen Equipment 39,300
Customer Seating Furniture 2,500
Electrical and Plumbing Work 6,000
Miscellaneous Work 2,200
Total 50,000

Sri Lankan Foods Income Statement (CA$)

2017 2018 2019 2020 (Projected)
2021
(Projected)
Revenue
Catering 13,096 20,738 26,192 26,192 26,192
Food Sales
(Market) 97,927 82,713 71,856 71,856 71,856
Food Sales (New
Location) … 101,190 273,600 328,500 328,500
Total Restaurant
Sales 111,023 204,641 371,648 426,548 426,548

Granola
(Wholesale) 25,730 25,730 38,595 51,460 64,325
Granola (Retail) 25,730 44,095 57,200 57,200 57,200
Total Granola Sales 51,460 69,824 95,795 108,660 121,525

Total Revenue 162,483 274,466 467,443 535,208 548,073

Restaurant COGS 48,274 89,402 163,785 188,459 188,459
Granola Costs 50,326 51,705 69,361 79,240 89,119
Administrative
Expenses 60,936 155,031 221,789 221,789 215,687
Total Expenses 159,537 296,138 454,935 489,488 493,265

Net Income/(Loss) 2,946 (21,673) 12,508 45,720 54,807

Note: COGS = cost of goods sold.
Source: Created by the case authors
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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: $11.6 million.
• Number of textbooks collected: 2,225,000.
• Textbook donations: 1,080,000.
• Become the leading social impact provider of affordable physical and digital educational material
for students around the world.
• Develop a top-quality international team while developing Canada’s social impact and start-up
environment.
• Achieve sustainability of the content-sharing platform.
• Target 100,000 digital notes from North American students.
Note: All dollar amounts are in Canadian dollars.
Source: Created by the case authors.
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EXHIBIT 10: MATERIAL IMPACT—FINANCIAL AND OPERATIONAL SUPPORTING DOCUMENTS (CA$)

Five-Year Projected Balance Sheet
2020 2021 2022 2023 2024
Assets
Cash and Equivalents 105,466 388,592 1,165,777 2,331,554 4,663,107
Accounts Receivable 2,500 7,500 15,000 30,000 60,000
Furniture and Equipment 5,000 15,000 30,000 60,000 120,000
Vehicles 35,000 75,000 150,000 300,000 600,000
Total Assets 147,966 486,092 1,360,777 2,721,554 5,443,107
Liabilities
Accounts Payable 2,000 6,000 12,000 24,000 48,000
Loans Outstanding 196,250 182,500 168,750 155,000 105,000
Equity
Owners' Equity 50,284 297,592 1,180,027 2,542,554 5,290,107
Total Liabilities and
Equity 147,966 486,092 1,360,777 2,721,554 5,443,107
Five-Year Projected Income Statement
2020 2021 2022 2023 2024
Textbook Revenue 1,203,258 3,891,554 7,783,108 15,566,217 31,132,433
Marketplace and Shipping
Fees 452,591 1,453,947 2,907,895 5,815,789 11,631,579
Gross Profit 750,667 2,437,607 4,875,214 9,750,427 19,500,855
Collection Partner
Payments 77,280 151,020 302,039 604,079 1,208,158
Advertising and Promotion 52,850 132,300 396,900 1,190,700 3,572,100
Salaries and Wages 510,413 1,346,971 2,424,548 4,364,187 7,855,536
Vehicle Operating Costs 29,200 53,400 80,100 120,150 180,225
Rent 63,360 117,100 210,780 379,404 682,927
Freight 25,600 129,600 259,200 518,400 1,036,800
Office and Warehouse
Supplies 18,000 31,600 56,880 102,384 184,291
Administrative and
Professional Fees 12,000 37,350 93,375 233,438 583,594
Miscellaneous 18,000 37,600 75,200 150,400 300,800
Total Operating
Expenses 806,703 2,036,941 3,899,022 7,663,141 15,604,431
Net Ordinary Income 56,036 400,666 976,191 2,087,287 3,896,424
Other Income 17,349 0 0 0 0
EBIT 38,687 400,666 976,191 2,087,287 3,896,424
Interest Expense 9,208 13,463 13,238 13,013 11,100
Tax Expense 0 58,080 144,443 311,141 582,799
Net Income 47,895 329,123 818,510 1,763,133 3,302,526
Loan Interest Schedule
2020 2021 2022 2023 2024
London Lenders
(15,000) 788 563 338 113 0
Lisa & Quinn (40,000) 2,400 2,400 2,400 2,400 600
Lisa & Quinn (50,000) 1,875 3,000 3,000 3,000 3,000
LSY Investment Fund
(50,000) 2,700 5,000 5,000 5,000 5,000
Verge Capital (50,000) 1,445 2,500 2,500 2,500 2,500
Total Interest Expense 9,208 13,463 13,238 13,013 11,100
Note: EBIT = earnings before interest and taxes; London Lenders, Lisa & Quinn, and LSY Investment Fund = organizations
and investors who are also seeking to invest in Material Impact to finance their growth plans.
Source: Created by case authors.

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