Charities should use the social investment market to sell shares of their trading arms, an audience of charity professionals heard today.
Pradeep Jethi, chief executive of the Social Stock Exchange, said that rather than funding a trading subsidiary itself, a charity could sell a share in it to a social investor in order to raise start-up costs.
Speaking in London today at an Action Planning conference called Funding Your Future, Jethi said that Italian not-for-profit organisation Vita, which provides magazines and other media for the third sector, had already followed this model and was listed on the Alternative Investment Market, a sub-market of the London Stock Exchange.
He said that other charities should consider whether they could do the same with their trading subsidiaries.
Jethi said a charity that followed such a model could also list its services on the Social Stock Exchange.
Speaking after the event, Jethi told Third Sector he understood that charities might be worried about income from donated goods going to investors rather than charity, but there were models to prevent this happening.
"For example, Vita doesn’t pay dividends," he said. "If the company makes profits, it buys back a proportion of the shares from investors – so, when it’s made enough money, control of the company will revert entirely to the not-for-profit parent.
"In the end, this might cost more. But it means that someone else is taking the risk of your subsidiary failing, and also that you pay out money gradually, rather than all up front."