As far as I understand the concept of « altruistic capital« , the firm practicing altruistic capital donates a percentage of its capital to a nonprofit organization and commits to keeping on donating more shares when the number of shares increasees, so that the percentage of donated shares remains constant (it is called the « altruistic index » if I remember well).
Here is my « altruistic stock options » variation on this theme. Since I am almost a newbie in entrepreneurship and altruistic capital and since I don’t master the arcanes (and vocabulary) of finances, please someone tell me if this makes sense and what you think :
Instead of donating the shares to the nonprofit, the nonprofit has to buy them.
At first, let’s say 10% of the shares are sold to the nonprofit. Later the capital changes and 100% more shares are about to be created (the number of shares is to double). Because of its commitment to my variation on the altruistic capital theme, the nonprofit then receives the exclusive and time-unlimited right to buy the number of shares it needs in order to get back to owning 10% of the capital, at the price of these shares when they are created. It means that once it buys these shares, the nonprofit will still own 10% of the capital : 5% bought at first and 5% bought after more shares where created. Unless the nonprofit buys this 5% more shares, the capital of the firm is only 195% what it was first and the nonprofit has earned the right to purchase 5% more shares at the price they have when the other 95% shares are created. This 5% more shares are sort of « altruistic stock options » which the nonprofit receives.
Pros of this variation :
- it contributes to funding the altruistic firm : it’s more of a win-win cooperation between the firm and the nonprofit than a pure donation of capital to a nonprofit ; as a consequence, it may be a more seductive offer for entrepreneurs
- it allows the nonprofit to invest in the company when and only when it wants to (for instance, when it wants to receive more dividends or when it wants to sell its shares – as long as this is allowed)
- it gives an incentive to the nonprofit for investing as soon as it can (so that it can receive more dividends)
- it may allow nonprofits to actively contribute to the development of social startups (small capital but both expected social impact and expected financial impact)
- Higher complexity
- Lower generosity
- Puts a barrier on the entry of poor nonprofits into the capital of altruistic firms (they have to be able to buy more shares even though they can wait as long as they want) unless they enter these firms when at startup stage, maybe the system can be bootstrapped by first having altruistic shares donated and further donations be replaced with altruistic options.
So, what do you think ?
There a many variations on the theme of options and derivatives that are possible. They all need to be studied carefully and this is what I intend to do. My first impression is that the scheme you describe should not « pass ».
1) It may not be a gift. If exercise value > stock value, the value is 0.
1 bis) Extreme case: a firm arbitrarily sets up a high exercise price (so value of donation is 0) and takes advantage of this pseudo-gift in its communication.
2) If non-profit exercices and decides to keep shares, it may even loose money in the future.
Altruistic Capital is a gift, not a smart investment (of course, non-profits may invest, but this is not Altruistic Capital)