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The Almighty Buck

Video Why Kickstarter Became a Public Benefit Corporation (Video) 40

Meet Kickstarter co-founder and CEO Yancey Strickler. Timothy Lord asked Yancey about Kickstarter's recent move to become a Public Benefit Corporation, which is, according to Wikipedia, "a specific type of corporation that allows for public benefit to be a charter purpose in addition to the traditional corporate goal of maximizing profit for shareholders."

This corporate restructuring has no tax advantages, and creates a slight increase in paperwork, Yancey says. So why did they do it? Please view the video (or read the transcript, which has more info than the video) to find out.

Timothy Lord for Slashdot: Yancey, could you please introduce yourself and tell us a little bit about what your role is at Kickstarter?

Yancey: Well, my name is Yancey Strickler, I am a co-founder and the CEO of Kickstarter. So I’ve been a part of the organization since 2005 when I joined my partner Perry Chen who was the first guy who had the idea, and then I became CEO of the company about a year and a half ago, beginning of 2014. Before that, I was our customer service rep and community rep and did a lot of different roles.

Slashdot: Today we are talking with you about an interesting change that Kickstarter has made: You recently moved to be a public benefit corporation. I would like to talk with you a little bit about that today, but the first big question is: Why would you do that? What are the benefits that this brings to Kickstarter, to project creators who use Kickstarter and perhaps other people too? But those are the two big groups that it seems like this maybe going to affect their lives.

Yancey: Well, I think that it is not the first word maybe you would expect a CEO to say, to this question, but I would say idealism was maybe the reason why we did this. I mean, when you become a public benefit corporation, it means that you are legally committing yourselves to considering your company’s impact on society as well as whatever profits that you seek just to be a for-profit business. So it mandates a balancing of those two things. So in effect it quite literally mandates that a company performs some sort of public good during the course of its actions. So it is thinking of the do-no-harm way that when we maybe think of socially good companies and actually giving that more teeth, and making it much more of an imperative. And so, for us, we have had our eyes on this for many years.

We incorporated as a for-profit corporation and we think the for-profit model is a good one to attract talent and build people around the globe, but we don't think that that should mean that we have to worship at the altar of growth and money. That's very much not who we are. And so, we have always searched for the deepest ways that we could express that, and here we found that we could actually re-incorporate the company so that even in a piece of paper that is in a courthouse somewhere in Delaware these values are inscribed, this way that we see things is codified. And so that is attractive to us, thinking about the clear -- just the way it puts our cards on the table, and clearly communicates to the world that this is what it means to do business with Kickstarter. And also ensures that future leaders of Kickstarter, 40 or 50 years from now if we are fortunate to still be around then, but they will also be required to follow these same sorts of things.

So you will see this repeatedly where maybe there is a very thoughtful CEO in charge of the company, but then they leave and the new guy or new girl comes in and it all just goes to hell. And so we wanted to ensure that these things were very clear for us for the long term.The other thing I would say is that, we received no tax benefit from this, in fact, quite the opposite, where we have inscribed in our charter that we will not exploit legal tax loopholes to lower our tax burden and we will provide an explanation of what we paid in taxes each year. And so in many ways, this makes the operations of the company a bit more onerous but in such a way that we think it is better for the organization and actually produces... yes, it is a better organization for people use it, and also our neighbors in New York City and around the world.

Slashdot: Except for that last bit about taxes, you have described this in fairly abstract terms. So I wonder if you could give us a couple of examples or consequences of what does this mean, for instance, for a project creator or somebody who again... you mentioned if you are lucky enough to be around in a couple of decades from now, if someone says, 'Hey I want to look up this old project,' what are the specific consequences or examples you can name of how this will change the actual public face of the company?

Yancey: I don't know to what degree it will change the public face. But I think it maybe just gives a label to a way that we've always been and struggle to communicate, you know, it is like we have always been interested to... it has always been important to us how we think about things, and I think the gap between how we operate and what we think of business as usual is out in the rest of the world, and that's something we've always cared very much about. For someone who uses the platform I wouldn't expect to see any difference, I mean, they -- now 5% of Kickstarter's annual post-tax profits will be given to arts and music education programs and organizations fighting to end systemic inequality. So there is a social justice sort of banner that is being lifted as a company. One other part that is material is that we say that we will champion and support artists and creators working in less commercial areas. And so this is a... it is a like a phrase at a pretty high level but we have actually a pretty specific thought of what that means. Which is that if you have market forces to guide a platform it will just take it to areas that are extremely profitable.

Slashdot: Don't you consider Kickstarter a market force?

Yancey: Sure, sure it is a market but there are also market forces within the market force at Kickstarter, and so if we were to think about the platform solely in terms of where is the greatest amount of profitability, the most revenue we would be a platform that would basically only serve tabletop games, video games and technology projects. But of course, our platform is much broader than that. Like 80% of the projects on the site come more from arts and cultural spaces and so what actually... how we are interpreting this rule internally is that we will overstaff in those areas that are not as lucrative to ensure that we remain fighting for the rights of the environment and right conditions for the poets and writers and people who are not looking to commercially grow their work but are simply wanting to express ideas. And so it is mandating that for as long as the company is around that we we just pay special attention to those things, even at the expense of some profitability. Also, we prohibit ourselves from selling any user data to third parties to putting up a fight if governments make requests for data that we believe are, you know, go beyond what is reasonable. And so there are a number of things like that that are written into that, but basically there are four broad strokes of the charter: One is around our devotion to arts and culture, and our mission; another is around how we operate as a company, and so prohibiting tax avoidance or selling user data, or lobbying for policies that might be in our economic interests but are not in the interests of our community; and finally, to fight inequality and to do that through how we run the company internally as well as an annual donation.

Slashdot: Now you mentioned that this was a move that was years in the making, how complicated was it? It is not as simple obviously as taking out that paper from that safe in Delaware and scribbling in crayon on top. How long did it take to actually effect this, because the big announcement... there's been a legal wrangling situation?

Yancey: Yeah, I think it has been an active project for maybe two years, the last eight months very very active. You know, one thing I would just say from the get-go is that if someone is starting a company now, I would encourage them to start as a benefit corporation, you receive all these benefits but you actually face no legal obstacles. Because as you are starting as one, you can just choose whether to be a C corporation or a benefit corporation, it is just like checking a different box.But yeah, I mean, there is a series of steps to it, one we obviously have to draft a charter, or actually you don't have to, we chose to draft a charter to make some specific commitments as a company, but the legal parts are that, you have a vote from all of your shareholders, and at least 66% of outstanding shares must vote yes for this to happen. And so, we sent out a package to our shareholders maybe two months ago, explaining this, it was like a 60-page document - very intense - just sort of laying out what this was, because it was very new it is only two years old, the concept, in Delaware, and yeah, so we laid that out to them, and then opened it for a vote. And so, our shareholders include one venture capital firm, Union Square Ventures here in New York City, a guy named Fred Wilson, with some angel investors like Jack Dorsey from Twitter, or Chris Sacca who is quite well known, as well as friends and family like the owner of Polyvinyl Records, the publisher of Pitchfork, a guy from 4AD Records, some people in bands, the comedian David Cross, and so to put up to vote to all these people. And we didn't receive a single dissenting vote. Everyone voted yes, and we got no pushback. And I think everyone just thought this was exciting and wanted to be a part of it.

Slashdot: My next question really was going to be: What sort of pushback you had gotten, you say zero. That's outstanding.

Yancey: Yeah, well, I think, there was good expectation setting on our part. From the very beginning we told everyone that we had a very ideological perspective on this company and we wanted to build something that we thought was meaningful and reflective of our mindset at every level. And so we always said that we would never sell the company or go public that we were seeking to build a private company that would chart its own course, and that it would be staunchly independent - that was very important to us. And so I think that for the people who have been with us from the beginning, this is not a surprise, maybe it is like 'Oh okay this is how they are doing that now.' And so we were very fortunate to have people with us. For someone starting a company and taking any sort of money the key is that there is clear alignment on the desired outcome from the beginning. If we had tried to sell up a big valuation by promising things that weren't actually in our hearts, we would probably be in some hot water right now. I believe, we have just always been very plain and very bare about what success with Kickstarter really meant to us.

Slashdot: Now Yancey, you have actually answered all the questions that I laid out to ask you here, but now I am going to ask you: Are you friends with the guys at Etsy?

Yancey: Sure, sure. Absolutely. Absolutely.

Slashdot: Are you just down the street from them?

Yancey: We are a ferry ride away.

Slashdot: A ferry ride away? Okay, that's pretty close. Alright, Yancey like I said, actually we have gone through the list, and my final question to out that I outlined beforehand was going to be how it changes things about how the Kickstarter experience works, how it changes things for you at the company, and it sounds like really not very much, because this is sort of a plenary document but your day to day operations haven't changed this doesn't change anything about your mindset, it is more... you have finally achieved it - is that a fair summary?

Yancey: Well, maybe. I mean, in some ways yes, but I think that also the act of inscribing these things down to a legal document and publishing it for the world to see and holding ourselves accountable to it does bring a different... it brings a different emotion to it. Like I woke up Monday feeling a bit more purposeful and feeling a bit like "I've really got to live up to this," We really have to... like this feels like an accomplishment and it is, but I probably even more so now feel like it is the start and that we will have our first public report of what we've done in February 2017, so we are not rushing for this coming February, we want to spend some time just finding the right way to do a lot of these things. But it creates a different mandate, and for me, it creates a mandate to be more courageous as an organization and as a leader, and for us to speak out about things that we care about. And we have been very active, we are very active in net neutrality and so on, things of that scale, but those things in smaller scales that I believe we should be more active in. And so, you know the nice thing by drawing a line in the sand in this way, is that there shouldn't be a lot of surprises on the other side of it, unless we do something f****ed up. But I think that we understand what's right and wrong and we want to hold true to that. This will definitely create a new level of accountability for us as an organization but on our sales, but also just public expectations.

I am sure we will find ourselves in challenging circumstances that we didn't anticipate in coming years as a result of that, but here we have a sort of a guiding North Star if I had to think about those things. And I do believe that that level of accountability will ultimately force us to be a better organization, even if there are harder days as a result of that. So I look at all that with eyes open and I feel predominantly excitement, predominantly excitement, there is a little bit of anxiety, of just like it is real now, and I am a human being so you feel that, but yeah, I feel proud and I do think that and I don't say this to Slashdot readers especially, I don't think that the values the we put forward to you are so crazily unique. I think these are things that a lot of us feel, and I think a lot of us would like to live in a world where corporations feel this need to take these sorts of stands, and so we kind of look to this as, alright, we will go first, help that using the same.

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Why Kickstarter Became a Public Benefit Corporation (Video)

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  • by mrchaotica ( 681592 ) * on Tuesday September 29, 2015 @04:06PM (#50621917)

    They talk about choosing this corporate structure (in part) to prevent themselves from exploiting tax loopholes, yet they incorporated in Delaware (rather than the state their main office is actually in -- New York, apparently), which could be construed as exploiting loopholes (at least regulatory, if not directly tax-related) in and of itself. What gives?

    • no one wants to be located in NY, very unfriendly to business here (one of the reasons im leaving)
      • no one wants to be located in NY, very unfriendly to business here (one of the reasons im leaving)

        Unfriendly to some business, but very friendly to other business. There are plusses and minuses. New York has well-developed case law on everything under the sun, and has a very competent commercial division of its courts that deals exclusively with million-dollar-plus commercial cases.

        • too much cronyism here. NYC may be good for rich folks, but for the mom an d pops trying to start something, its not friendly at all
          • by guises ( 2423402 )
            New York might be worse than... Where, exactly? I've lived in New York and New Orleans and it's like comparing apples and rotting oranges as far as corruption is concerned. The US has a lot of corruption problems, but among the big cities New York is better than... some. I'd put it in the middle somewhere.

            Seriously, where is this non-corrupt paradise? Cleveland? I don't know squat about Cleveland. It's probably Cleveland.
      • Do you dispute that shills exist? That corporations and governments are actively paying people to pollute public forums? If I find out that a poster is a shill, does it not somewhat become a helpful, healthy goal to inform others?

        I get what you're saying about wanting to cease the logical fallacies. But the evidence (government manuals, testimonials) that people are being paid to divert discussion exists. So, what do you think should be done about it?

    • "The Delaware General Corporation Law is the most advanced and flexible business formation statute in the nation. The Delaware Court of Chancery is a unique 215 year old business court that has written most of the modern U.S. corporation case law. Delaware’s State Government is business-friendly and accessible. The state’s Division of Corporation is a model state-of-the-art efficiency and the staff provides prompt, friendly and professional service to clients, attorneys, registered agents and ot

    • by dj245 ( 732906 )

      They talk about choosing this corporate structure (in part) to prevent themselves from exploiting tax loopholes, yet they incorporated in Delaware (rather than the state their main office is actually in -- New York, apparently), which could be construed as exploiting loopholes (at least regulatory, if not directly tax-related) in and of itself. What gives?

      Everybody incorporates in Delaware because it is easy and cheap to file the paperwork there. If you are selling things, or have employees, in almost any state, you have to register as a foreign corp/LLC in that state anyway, open worker's comp accounts, open tax accounts and pay income tax, etc. It really isn't cheating on tax, or a loophole, since you have to pay the corporate income tax in whatever state you made the income.

  • My guess is that it's an effort to avoid the looming backlash as Congress (who barely even perceives the internet yet) starts to get waves of angry mail from constituents complaining that they've "lost our life savings on this Kick-Starter-thing and now they claim they're not responsible"....

    I KNOW they're basically just an aggregator.
    I KNOW "caveat emptor" and agree with it.
    But when congress starts to see that $millions$ have vanished chasing projects* they're going to start looking for someone to hang, an

    • My guess is that it's an effort to avoid the looming backlash as Congress (who barely even perceives the internet yet) starts to get waves of angry mail from constituents complaining that they've "lost our life savings on this Kick-Starter-thing and now they claim they're not responsible"....

      If that were true, Congress would have come down much harder on the banks and stock market already after the housing crisis.

      They don't really care, but a few might use it as a point to extort^H^H^H^H^H^H get campaign donations from Kickstarter.

  • by trout007 ( 975317 ) on Tuesday September 29, 2015 @04:55PM (#50622171)

    A company that maximizes profits in a free market is much better for society than one operating at a loss. A profitable company is meeting societies needs in a cost efficient way. A company operating at a loss is wasting resources.

    • I think you're conflating society's needs with those of the company's shareholders.

      Ever heard of externalities?

  • Becoming a public-benefit corporation is the first step towards becoming a non-profit, 501(c)(3) tax-exempt corporation. A private-benefit corporation cannot be tax-exempt.

    Of course, this means much more than Kickstarter merely avoiding taxes. It also means it cannot compete with for-profit companies; any profits unrelated to its public-benefit purpose are taxed at a higher rate than for-profit corporations. This also means that it cannot endorse any candidate for election to public office and severely l

  • Why is a public benefit corporation not the default, with added paperwork and taxes for private-benefit corporations?

    That way a company can actually "do the right thing", even if it may not directly benefit the shareholders.

  • What happens if they don't fulfill this new mission? Where's the legal accountability? Or is this just a fancy version of a mission statement?

  • Start vetting your projects better. I've funded four projects, only one of which saw the light of day. And that one was almost as bad as the Kreyos I funded at Indiegogo. Quite frankly, I'm done with crowdfunding until IGG and KS start vetting instead of letting any scammer with a post box drop and a slick video to start a campaign.

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