Social Venture

A Social Impact Fund cannot invest in anything just because it calls itself "social". The workbook sets a clear legal test for this, and gives it a name: Social Venture.

A Social Venture must have one of five legal forms. These are a trust, a society, a company, a venture capital undertaking, or a limited liability partnership (LLP).

It must also exist for a social purpose. That purpose can be promoting social welfare, solving a social problem, or providing a social benefit. Any one of the three is enough.

A Social Venture is not itself a listing category on the Social Stock Exchange. It does not register or list there. Instead, it is the kind of entity that sits on the receiving end of a Social Impact Fund's investment.

The workbook's own footnote definition, in full: "Social Venture means a trust, society or company or venture capital undertaking or limited liability partnership formed with the purpose of promoting social welfare or solving social problems or providing social benefits." It has two parts, and both must be satisfied:

1. Legal form. A trust, society, company, venture capital undertaking, or limited liability partnership — five permitted structures, named exhaustively in the definition.
2. Purpose. Formed with the purpose of promoting social welfare, solving social problems, or providing social benefits — any one of the three is enough.

Where the term does its work in the workbook is in defining what a Social Impact Fund — an Alternative Investment Fund — may invest in: "Social Impact Fund means an Alternative Investment Fund which invests primarily in securities, units or partnership interest of social ventures or securities of social enterprises." The two permitted categories of investee are named side by side: social ventures and social enterprises. A Social Venture need not itself be registered or listed on the SSE to receive this kind of investment — the Social Impact Fund route is a separate channel from direct listing.

The scale of that channel is itself regulated: Social Impact Funds issued by AIFs can invest 75% of their investable funds in unlisted securities or partnership interest of social ventures (or units/securities of social enterprises), with the remaining investable funds to be invested in securities of NPOs, and only with the prior consent of at least 75% of the investors by value of their investment.

Grameen Sahayog Trust is set up as a trust with the stated purpose of solving the social problem of inadequate rural sanitation. It meets both limbs of the definition — a permitted legal form (trust) and a qualifying purpose (solving a social problem) — so it is a Social Venture.

A registered Alternative Investment Fund, Uday Social Impact Fund, wants to deploy its corpus. Under the rules governing what a Social Impact Fund may invest in, it can put money into:

Suppose Uday Social Impact Fund's investable funds are Rs 40 crore. Up to 75% (Rs 30 crore) may go into unlisted securities or partnership interest of social ventures like Grameen Sahayog Trust. The remaining 25% (Rs 10 crore) must be invested in securities of NPOs — and only after at least 75% of Uday's own investors, by value, have given their prior consent to that allocation.

Chapter 2 (Social Stock Exchange: Introduction, Funding Structures and Instruments), section 2.3.1, defines Social Venture in a footnote to the Social Impact Fund discussion, immediately after the funding structures available to NPOs. Expect a definitional question on the permitted legal forms (trust, society, company, venture capital undertaking, LLP) and a question on what a Social Impact Fund may invest in — social ventures and social enterprises, named together.

• Five legal forms, named exhaustively: trust, society, company, venture capital undertaking, LLP. A sole proprietorship or a general partnership (not an LLP) does not fit the definition as given.
• Any one of the three purposes is enough — promoting social welfare, solving social problems, or providing social benefits — the entity does not need to satisfy all three.
• A Social Venture and a Social Enterprise are named as two separate categories a Social Impact Fund may invest in — do not treat "social venture" as simply another word for "social enterprise" in this specific regulatory context, even though the two overlap in ordinary usage.
• The 75%/25% split, and the 75%-of-investors-by-value consent condition, apply to how a Social Impact Fund allocates across these categories — they are not conditions the Social Venture itself has to meet.
• A Social Venture receiving Social Impact Fund investment is a different route from an NPO or FPE directly registering or listing securities on the SSE — the two are not the same fundraising mechanism.