The idea

The Charities Exchange is an online virtual trading market for charities. All charities listed on the market are valued independently for their viability as a business and their impact on their chosen objectives, and traders can buy and sell virtual “stock” in those charities from each other. Charities will receive a windfall from the initial purchasers when they list on the exchange, and after this IPO phase, they receive 10% of all profits made from trading on their stocks. As the value of a charity’s stock rises, their virtual backers can make a profit from selling at a higher price, and the charity gets a windfall from the virtual market – enabling investors to make money whilst generating profits for successful charities. No actual ownership of the charities would change hands, their governance and organisational integrity would remain unchanged – they would effectively be participants in a virtual betting market on their performance.

What social need does it address?

The charitable sector creates huge value for society, and its organisations often create huge untapped commercial value in terms of fixed assets, staff, brand, relationships and contracts. If they were commercial, profit-making companies, they would be able to use this value to tap into rich veins of investment and loan financing to achieve their business aims. But because they are non-profit entities, there is no way for investors to make money from the value these organisations create, and hence the third sector is reduced to constantly seeking funding from wealthy individuals, organisations and the public sector. In all too many cases, this constant need to seek funding distracts good organisations from their core purpose and limits their impact on the very social issues they were created to address. No matter how viable they become as businesses, they struggle to survive. Meanwhile, investors are forced to choose between giving money away to good causes, or making money from investing in profit-making companies. But the best situation for both sides would be mutual profit: a way to invest in valuable non-profit businesses, support their work, and get a modest return.

What’s new about it?

There is no current model for investing in straight non-profit organisations and making a financial return. This effectively opens up an entirely new market for private investors and funds to make a return, and gives the third sector access to a small proportion of the vast resources of the private equity market without surrendering any control or ownership to third parties.

What inspired you?

Almost every social entrepreneur I know is struggling for money: it is the single biggest obstacle to doing good through charitable or social enterprises and the major focus for all third sector leaders. And yet there is no shortage of money around, obvious social and commercial value to third sector organisations, and an increasing emphasis by wealthy individuals to invest in “ethical” ventures and take more care about how their money is invested. Then I saw the work of virtual trading markets such as metamarkets which allow people to bet real money on virtual events, and began exploring how these ideas could be applied to solving the third sector’s funding issues.

Idea submitted by Andy Gibson

Andy is Co-founder and COO of School of Everything and Founder and Director of Sociability. He is also a serial contributor to Social Innovation Camp.