Kickstarter Boldly Locks Its Mission Into Its Legal Framework

Kickstarter Boldly Locks Its Mission Into Its Legal Framework
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Kickstarter has long purported to be a mission-driven company, but it has just taken that commitment to a whole new level.  

The Brooklyn, N.Y.-based crowdfunding platform, which was founded in April 2009, announced that it has legally become a public benefit corporation. Unlike a C corporation, which dictates that a business must first and foremost respond to the needs of its shareholders, Kickstarter now will be legally protected as it makes business decisions that align with its mission, first and foremost. It cannot be dragged into court for making decisions that put purpose before profit.

“We've codified our mission and values at the deepest possible level,” says co-founder Yancey Strickler, in a tweet this morning.

Becoming a benefit corporation does not mean the company is not-for-profit. Kickstarter has been profitable for “several” years, and in the last three years, the crowdfunding platform has had profits between $5 million and $10 million, according to Justin Kazmark, a spokesperson for Kickstarter. Instead, the move is a commitment and legal protection for Kickstarter to operate in a way that not only benefits its bottom line, but also benefits its community.

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“Companies that believe there are more important goals than maximizing shareholder value have been at odds with the expectation that for-profit companies must exist ultimately for profit above all,” wrote Kickstarter’s founders in a blog post published this morning. “Benefit Corporations are different. Benefit Corporations are for-profit companies that are obligated to consider the impact of their decisions on society, not only shareholders.”

Kickstarter spelled out how it will benefit society under its new legal framework and its five pillars range from bringing creative projects to life to a commitment to the arts and fighting inequality. Perhaps most notably, as part of its new charter, the crowdfunding platform says that it will donate 5 percent of its after-tax profits towards arts and music education, and to organizations fighting to end systemic inequality.

With its latest action, Kickstarter joins a relatively small group of big-name companies that have taken the plunge to marry their idealism to their operational structure, including the eco-friendly cleaning products company Method and the outdoor-gear company Patagonia.

There is nothing preventing a benefit corporation from going public, though none have gone public yet. Kickstarter has no plans of going public ever, according to Kazmark.

Related: 7 Secrets From the Man Who Turned a Kickstarter Flop Into the Most Successful Campaign Ever

Separate from its status as a benefits corporation, the crowdfunding platform that has helped people raise more than $2 billion to fund their projects is also a certified B Corporation. Being certified as a B Corporation requires an application process with a third-party, non-profit organization called B Lab. While the process requires a considerable amount of transparency and allows a company to put mission on the forefront, there are no legal protections that come with being designated a B Corporation. Kickstarter has been certified since November 2014.

Kickstarter is legally re-incorporating in Delaware, where it has always been incorporated, as a benefit corporation. The first state to pass legislation making it legal for a business to be a benefit corporation was Maryland in 2010. Since then, 31 states have passed benefit corporation laws and another five are working to do so.

While companies have long had corporate give-back programs or written, in some cases, impressively large checks to various charities throughout history, the spread of benefit corporation law across the U.S. speaks to a growing trend of for-profit and for-purpose companies. Much of the push has been driven by millennials, both as consumers and employees, who are looking for companies to make social responsibility a part of everyday operations.

Related: What's to Prevent Someone From Ripping Off Your Crowdfunding Campaign? Not Much.

“Public benefit corporations are not a replacement for traditional corporations in America. But as the next generation of publicly-traded companies comes into being, benefit corporations will be among them, helping to build public trust in business, and becoming an attractive investment opportunity for the growing number of investors who increasingly want to make money and to make a difference,” wrote Gov. Jack Markell of Delaware in July of 2013 when his state passed legislation making it possible for a company to organize as a benefit corporation.

To be sure, pushing all of your chips to the middle of the table is bold -- but it is also risky.

Kickstarter has raised less than $15 million so far and its co-founders retain the majority of the company’s ownership, according to Kazmark. However, if Kickstarter does want to raise more outside capital, being aggressively mission-driven may indeed cause some investors to pinch their wallets a bit tighter, and it may even push some investors away completely.

Related: Why This $9 Billion Publicly Traded Toy Company Is Crowdfunding to Find the Next Big Game
Edition: October 2016

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