Kickstarter Goes B-Corp
Kickstarter Focuses Its Mission on Altruism Over Profit
New York Times
By Mike Isaac and David Gelles
In the photo:
Credit: Jake Naughton for The New York Times
Many technology start-ups aim to become “unicorns,” the companies that get valued at $1 billion or more on their way to probable vast riches. Yancey Strickler and Perry Chen have no interest in that.
As co-founders of Kickstarter, the popular online crowdfunding website that lets people raise money to help fund all manner of projects, including cooking gadgets and movies, Mr. Strickler and Mr. Chen could have tried to take their company public or sell it, earning millions of dollars for themselves and other shareholders.
Instead, they announced on Sunday that Kickstarter was reincorporating as a “public benefit corporation,” a legal change they said would ensure that money — or the promise of it — would not corrupt their company’s mission of enabling creative projects to be funded.
“We don’t ever want to sell or go public,” said Mr. Strickler, Kickstarter’s chief executive. “That would push the company to make choices that we don’t think are in the best interest of the company.”
Public benefit corporations are a relatively new designation that has been signed into law by a number of states. Delaware, where Kickstarter is reincorporating, began allowing public benefit corporations in 2013.
Under the designation, companies must aim to do something that would aid the public (such as Kickstarter’s mission to “help bring creative projects to life”) and include that goal in their corporate charter. Board members must also take that public benefit into account when making decisions, and the company has to report on its social impact.
“Public benefit corporations will harness the power of private enterprise to create public benefit,” Gov. Jack Markell of Delaware said in 2013, adding that such companies “consider profit to be the means — not the exclusive end goal — of their business.”
Kickstarter’s move builds upon its decision last year to become a B Corporation, a voluntary designation certified by a nonprofit group called B Lab. To become a B Corp, companies must meet rigorous environmental and social-responsibility standards, which they report annually to shareholders — though taking on the status has no legal impact. Other companies, including the e-commerce site Etsy, which went public in April, and Warby Parker, the eyeglasses retailer, have also opted to become B Corps.
All of this stands in stark contrast to the behavior of many tech start-ups these days. With money having flowed freely into tech enterprises in recent years, businesses like the ride-hailing company Uber, the room-rental start-up Airbnb and the online storage service Dropbox have all raised billions from venture capitalists and big money managers, with the aim of large profits.
Becoming a public benefit corporation does not prevent Kickstarter from selling itself or going public, and it remains a for-profit entity. Still, as a B Corp and now a public benefit corporation, legal experts say, Kickstarter is holding itself to a particularly high standard of transparency.
“A public benefit corporation is only required to report its social and environmental performance to shareholders every two years,” said Kyle Westaway, a lawyer based in New York and managing partner of his own practice, who works with public benefit corporations. “But Kickstarter chose to go above and beyond and report to the public every year as a B Corp. This represents a real commitment to transparency.”
Kickstarter, which is based in New York, was founded by Mr. Chen, Mr. Strickler and Charles Adler, who is now an adviser, in 2009. Its site lets anyone pitch projects to the public to raise money, and Kickstarter earns fees from every successfully funded project on its platform. Kickstarter has helped fund high-profile products like the “Veronica Mars” movie and the Pebble smartwatch, but has also faced controversies, including complaints that prominent musicians and filmmakers have exploited the crowdfunding model while not being fully transparent with their backers.
For other companies, some of the stipulations Kickstarter put into its charter as a public benefit corporation would be anathema. Kickstarter is exceptionally charitable, for instance, donating 5 percent of after-tax profits to causes that support the arts and combat inequality. Kickstarter has also agreed to “not use loopholes or other esoteric but legal tax management strategies to reduce its tax burden.”
Kickstarter decided to become a public benefit corporation because “there’s a huge difference between a values document and the legal foundation of your company,” said Mr. Chen, who serves as chairman but focuses on making art.
Kickstarter still has investors to answer to. While the company has not yet raised much money — less than $15 million, with the founders retaining majority ownership — some well-known tech investors have backed it. They include Chris Sacca, a former Google executive who became a big investor in Twitter, as well as Union Square Ventures, a venture capital firm based in New York, and Jack Dorsey, co-founder of Twitter and Square.
Some of the investors said they knew what they were getting into, as Mr. Chen and Mr. Strickler made it clear early on that they were not looking for a massive payday from Kickstarter. Mr. Sacca said he believed there were other ways for shareholders to see returns from their investment in Kickstarter besides an acquisition or an initial public offering. It helps that Kickstarter’s financial trajectory has been strong. Mr. Chen and Mr. Strickler say their company has been profitable for years — in the $5 million to $10 million range per year for each of the last three years — and has continually reinvested that money in the business.
“It is a fast-growing, highly profitable enterprise. So, as an owner of the stock, I feel comfortable that I will be rewarded for that,” Mr. Sacca said. “When the time is right, I’m confident that Kickstarter will return cash to their loyal shareholders.”
Experience Kickstarter: https://www.kickstarter.com/