The founders of online crowdfunding website Kickstarter have taken an unusual step for a startup: They'veof an initial public offering or an acquisition that could potentially earn millions of dollars for themselves and other shareholders.
"It was just never an option for us," said 36-year-old Yancey Strickler, who moved into the CEO seat 18 months ago.
Instead, Kickstarter in late September reincorporated as a "public benefit corporation," reflecting its intention to have a "positive impact on society." The company will remain for-profit but must include a socially responsible goal in its corporate charter, take public benefit into account in business decisions and report on social impact. It also must donate 5 percent of after-tax profits to causes that support the arts and combat inequality.
"It was unanimous. There was not a single dissenting voice," Strickler said.
Kickstarter was founded in 2009 by Strickler, Perry Chen and Charles Adler. Since then, more than 92,000-plus projects have been funded by over 9.4 million people to the tune of about $2 billion in pledges. The money-raising, the company says, is designed to "bring creative projects to life."
According to PrivCo, which researches privately held companies, Kickstarter will likely have revenue of about $35 million in 2015, and a sale of the company could fetch between $900 million and $1.1 billion. Strickler, however, said that unlike with many startups, going public was never the company's aim.
Strickler, a former rock critic for the Village Voice and Entertainment Weekly, spoke with CNET last week about the implications of the company's new legal designation, his commitment to getting creative projects funded and the tension between being altruistic and being profitable.
What was your motive behind your transition to a public benefit corporation?
Strickler: From the outset we were determined to operate this business our own way -- to learn from others and build on what others do. Someone like tech icon Jason Fried, now the founder of Basecamp, is a strong inspiration for us. And we've been fortunate to have a shareholder and investor base that has strongly subscribed to this perspective. The assumption is that a for-profit company must exist for profit first and foremost. And we have never felt that way. We started this company because we believe in it as a place of empowerment for artists.
Does the PBC label mean you'll be sacrificing profit? How much?
Strickler: If you look at the second part of our PBC charter -- which says we will never sell user data to third parties and that we will not use loopholes or other esoteric but legal tax management strategies to reduce our tax burden -- those are all examples of ways we could potentially squeeze more revenue out of the business that we're choosing not to. That's always how we've behaved. So even though the margins for supporting dance and theater are far less than they are in hardware, we're going to overinvest in them. Our October 2012 decision that reinforced the fact that Kickstarter isn't a store clearly cost the company money but we were proud to make that decision. If you look at what's happening with Volkswagen now, there you see the costs of short-term decisions. [Editors' note: VW was not immediately available for comment.]
Tell me about some specific projects this PBC designation will affect.
Strickler: There are two categories of projects on Kickstarter at a high level. One would be more consumer-minded projects. That's predominantly people creating hardware and making games. The other category is arts and culture projects. That's probably 80 percent to 90 percent of projects on the site. Those are the projects that have the highest success rate on Kickstarter...and those are projects that tend to have strong community around them. If you look at the hardware area, it's more boom or bust. You either make several hundred thousand dollars or you get very little support at all, which I think is the correct way for that sort of space to operate.
Take me back to the very beginning, when the possibility of transitioning into a PBC first entered your mind.
Strickler: At the start of the year I got an email from our co-founder and former CEO Perry Chen. The subject line said "Existential Kickstarter." It said everything we dreamed of making when we were working on this was pretty much achieved a couple of years ago. And there were two things that he called out that I really agreed with. One is idealism. We're in this position that has real meaning. But is there a greater responsibility to that? The other reason for existence is innovation. What are other ways we can offer to help artists and creators?
What tension exists between tech companies being altruistic and simply responding to people just wanting to buy the latest and coolest tech?
Strickler: I think the technology industry is really progressive in a lot of its policies and the ways that it treats its workers...and the gestures made in thinking of a broader community. It just so happens that in some cases companies are put in difficult positions because of the nature of the industry...because economies change, for example.
Can you compare your decision to some things other companies have done? The CVS decision to not sell cigarettes comes to mind.
Strickler: The CVS decision was definitely a strong one. Probably the organization we spoke with the most in taking these efforts was Patagonia. Patagonia was one of the very first companies to be a PBC. They have clearly aligned their organization, their brand around a real consistent goal. We also wanted people to understand that this isn't a crunchy granola move, but an actual progressive move.
If your mission is still the same as it always was, what meaningful changes do you hope will happen with this new structure within, let's say, the next five years?
Strickler: I expect to see our core business of building community around creative projects continue to grow. Last March, we crossed a billion US dollars. And in roughly three weeks we're going to cross $2 billion. My big desire is that we're going to challenge ourselves to build in other ways.