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Equity investment

A type of social investment where an organisation can use the sale of its shares to finance activity

What does it mean?

This means investment through the purchase of share capital. If a civil society organisation’s legal structure allows it (i.e. a company limited by shares), it can sell its shares to individuals or institutions. The funds can then be used for start-up, growth or working capital.

Who might use it?

A company limited by shares is able to sell some or all of its shares to investors. However, this may dilute ownership and control of the company as shareholders may be able to make their demands on the management team to change operational strategy. Investors will also expect dividends, so not all funds will be re-invested in to the company. 

Most civil society organisations are constituted as companies limited by guarantee. (i.e. with no share capital) and so equity investments are generally rare. Additionally, exit strategies are not always forthcoming as equity offerings in the social sector are typically illiquid (there are few opportunities to buy and sell equity in civil society organisations). There is no established market for the shares, so it may take a long time before another investor can be found to exchange shares. Shares in the sector are typically traded on a “matched bargain” basis by a broker, rather than on a stock exchange. 

Who provides it?

  • Acumen Fund can make equity investments in early-stage enterprises providing deprived consumers with access to healthcare, water, housing, energy, or agricultural inputs from $300,000 to $2.5k.
  • Big Issue Invest can invest from £50,000 to £1,000,000 in equity.
  • Bridges Ventures: Venture Funds invest between £500,000 and £10m in ambitious growth business in four investment themes: Underserved Areas, Environment, Education & Skills and Health & Well-being.
  • CAF Venturesome can make equity investments when appropriate for charitable organisations.
  • Key Fund can provide bespoke equity investments from £5,000 to £20,000 to support the development and growth of enterprise activities.
  • Merism Capital provides equity investments between £50,000 and £150,000 and advice for for-profit social businesses.

Case study - Traidcraft

Traidcraft was founded in 1974 to promote the use of fair trade to relieve poverty in developing countries. CAF Venturesome was approached in 2002 as the company was launching a £3.25m share offer to finance capital expenditure and working capital, in response to growing interest in and demand for fair traded products. 

CAF Venturesome was attracted by Traidcraft’s social mission and its innovative use of share capital.  CAF Venturesome was able to invest £25,000 to support the company and signal its support to other charities and foundations to encourage them to follow suit. This was a new market in 2002, which has steadily grown over the years. 

Currently, Traidcraft has two components, the public limited company, Traidcraft plc, which sells fairly traded products in the UK, and a development charity, Traidcraft Exchange, which works with poor producers in Africa and Asia. The latter has almost five million shares in issue, most of which are held by some 5,500 individuals. CAF Venturesome was able to exit this investment in 2010 by selling its shares. However, exiting equity investments can be difficult in the sector as most organisations are not listed on a stock exchange so a broker will be required to match a specific buyer to a specific seller of shares.

Page last edited Oct 22, 2015

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