Non-profit IPO

I earlier discussed about the possibility of creating markets that exist not for profit. In this case, a market performs the function of aggregator and analyzer of information which is essentially the main purpose of a market. Typically, the way in which information is valued in the market is by profits, but it is not essential that the returns for investment be to owning shareholders…. all that matters is the perspective those shareholders have. Recently, I came by an article in the economist which displays this concept in action….. it reads…

NON-PROFIT CAPITALISM
Sep 11th 2008

An initial public offering with a difference

“WE RUN a business here–but instead of selling cars or candy to kids,
we’re selling hope and leadership,” says Nancy Lublin, the chief
executive of Do Something, a non-profit group which promotes
volunteerism by teenagers. On September 17th she is launching an
initial public offering (IPO) to raise the $8m needed to double Do
Something’s activities by 2011, by which time it plans to be engaging
with around 21m of America’s 32m teenagers.

 The IPO prospectus, put together by Do Something’s board of chief
executives and technology entrepreneurs, contains the usual market
data, a description of the 15-year-old organisation’s activities, an
overview of the competitive landscape and bold claims about its
qualities (“Do Something is also one of the most efficient
organisations in the United States”), all designed to convince
investors that it can achieve its ambitious goals. The only thing that
stops it from being a typical IPO prospectus is the absence of any
pledge to make a profit. On the contrary, the opening boilerplate
explains that “units offered in conjunction with this prospectus
represent a perpetual interest in Do Something; this interest is
strictly philanthropic, with no provision for cash returns at any time.”

 This imitation of the for-profit IPO process may seem gimmicky, but in
fact it is part of a new trend to improve how non-profits are financed,
so that they can escape the obsession with short-term fund-raising that
is pervasive in the charitable world. With money in the bank to finance
the next three years’ operations, Ms Lublin and her team will be free
to focus on reaching Do Something’s goals.

Other non-profits have done something similar, including Teach for
America, which puts recent college graduates into needy schools, and
College Summit, which aims to increase the number of poor children
going to college. VolunteerMatch[1], a sort of eBay for volunteers, is
in the process of raising $10m. George Overholser of Nonprofit Finance
Fund, one of the pioneers of this trend, reckons that around $200m of
“philanthropic equity” has been raised by non-profits in the past few
years, and another $100m is sought.

 Do “investors” get anything for their money? Do Something promises “a
significant social return on investment”, quarterly performance updates
and a conference call with management. But none of these recent
philanthropic IPOs actually gives investors voting rights, unlike
during the boom in “joint-stock philanthropy” in 18th-century England.
Back then, social entrepreneurs such as Thomas Coram, who started the
Foundling Hospital in London, were fired when they failed to perform.
Still, Ms Lublin says that if her new shareholders ever ask her to step
down, she will go.

 

I’ve copied the whole text here so that later the link wont get cut and I will lose this article. I am sure other funds have sought market-like funding sources, but this article describes exactly what would be entailed by taking non-profit firms to market. All that is required is that the market participants do their diligence on the firms which is motivated by the donators goals to maximize societal welfare. As long as firms are increasingly transparent, follow similar guidelines for reporting their results, and show clear motivation towards their goals, this would be an extremely worthwhile endeavor. Likewise, the government should create special tax consideration for investors in these firms with the stipulation that the firms do not pay a profit. In this case, charitable donations will still receive tax advantage under this market system.

 

Hopefully, this will expand our consideration of how a market operates and what kind of endeavors can be publicly funded in an open market. As I’ve noted before, science foundations should actively seek market funding through IPOs and the like under the same specification that they are not for-profit endeavors, but rather look to maximize societal welfare. Part of what has killed science research (specifically biotech research) has been the requirement from market to turn a profit as soon as possible. Along with this, student loans for college should likewise be funded this was more so than they are already. Investment in student education is paramount and should not be constrained due to the way in which we finance education currently (that is largely through debt).