Chapter 02 · The social stock exchange
Who shows up on the segment
Two broad kinds of organisation show up, and they are asking for different things. Treating them as one list is how a donation gets mistaken for a share.
Non-profits raising from donors
A charitable trust or a similar non-profit may come to the segment to raise donations, sometimes aimed at a named programme. You are not buying a residual claim. You are giving money, and the organisation’s duty is to spend it on the stated purpose and to report what happened. There is no ticker to sell if you change your mind. The ‘return’ you were promised, if any, was a social outcome, and even that was a target rather than a contract. Your questions belong to a donor: the programme budget, the track record of that programme, the administrative slice, and the auditor.
For-profit enterprises with a social constraint
A company that intends to earn a profit, and also binds itself to a social objective, may raise equity or debt. Here you do have a financial claim, and you also have the ordinary ways a financial claim goes wrong: losses, dilution, a promoter who borrows against the shares, a product nobody buys. The social objective can be a real constraint on profit — the company may refuse a price rise that a normal firm would take — and that constraint should be in your valuation, not in a footnote you feel guilty about reading. A thinner margin, chosen on purpose, is a thinner margin.
Side by side
| Non-profit raising donations | For-profit social enterprise | |
|---|---|---|
| What you give | A donation | Capital, as equity or debt |
| What you get back, financially | Usually nothing | Whatever the claim entitles you to, which may be nothing if the business fails |
| What you can monitor | Programme reports and accounts | Accounts, plus whether the social constraint is still being honoured |
| How you leave | You generally do not. The money has been given. | By the exit the instrument actually has, which may be thin or absent |
The intermediary in the middle
Between you and the organisation there is still a platform, a banker or advisor, and the rules of the segment as written by the regulator. Fees come out of the money raised or out of the organisation’s budget. Ask what fraction of a donated rupee reaches the programme in the first year, after those costs. A cause you admire does not make a 30% friction acceptable just because the alternative was not giving. It may make it acceptable because the programme is otherwise hard to fund. The number should be on the page either way.
What to remember
- A non-profit on the segment is asking for a donation. You do not become an owner.
- A for-profit is asking for capital. Judge it as capital, with the social constraint treated as a real limit on profit.
- The two do not belong in one mental account.
- Ask what fraction of the rupee reaches the programme after fees.
- If you cannot see how you would ever get investment capital back, assume you will not, and decide whether the donation is still something you want to make.