Kickstarter focuses on altruism over profit

Kickstarter donates 5% of after-tax profits to causes that combat inequality

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, Strickler and 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 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. 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.

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.

"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 Chen, 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."

©2015 The New York Times News Service