When Kickstarter announced it would become a public benefit corporation in September 2015, it was a fairly radical idea, especially for a high-flying tech company that could have reaped millions or billions of dollars by selling or going public. Now another crowdfunding company is following suit. Wefunder, based in San Francisco, is filing on November 2, 2016, to reincorporate as a benefit corporation.
Benefit corporation is a voluntary legal designation adopted by more than 30 states that allows a company’s leaders to enshrine their business’s mission into its legal charter. The structure is meant to protect a company’s mission even after the founders are gone or new owners come in. Wefunder also plans to apply to become a Certified B Corporation, a separate and voluntary designation administered by the independent nonprofit B Lab.
Wefunder’s mission, as spelled out in its charter, is to “Defend the American Dream.” Specifically, it declares: “We aim to increase economic growth and lower wealth disparity, by sharing the rewards of capitalism more broadly, and destroying the barriers that reduce social mobility.”
To that end, the company, which is not yet profitable, plans to give 5 percent of its profits to fund grants, training and mentorship for entrepreneurs; create more opportunity for the underprivileged; and offer paid time off and travel expenses for team members that mentor founders around the country, among other commitments.
The move sets a new tone for the fledgling crowdfunding industry, as a new type of online investment takes hold. Wefunder is the leader of the growing crop of investment-crowdfunding platforms ushered in by the JOBS Act. The centerpiece of that law, called Regulation Crowdfunding, went into effect in May 2016. For the first time, any individual could invest in small businesses and startups. Previously, such investing had been the domain of institutions and wealthy investors. To date, 78,102 people have funded 136 startups with more than $25.6 million using Wefunder’s platform.
In contrast, on Kickstarter, people give money and receive perks or rewards in return, such as products or t-shirts. But supporters receive no financial gain.
Under Delaware law, where Wefunder is incorporated, a company must get the approval of its board and at least two-thirds of its investors to become a benefit corporation. That’s a particular challenge for a company like Wefunder, which raised $5 million in growth capital primarily from small investors through crowdfunding on its own platform (what Silicon Valley likes to call “eating your own dog food.”)
Wefunder CEO Nick Tommarello sent a letter to the company’s 253 investors on October 27, 2016, explaining the change and asking for their signatures. Most signed on quickly — the two-thirds threshold was reached in just a few days. Exactly three investors had concerns that the benefit-corporation status would hinder profits or “exit” opportunities, such as an acquisition.
In the letter to investors, Tommarello tried to head off such misperceptions. “I want to make it very clear: Wefunder is a for-profit company. Further, I believe becoming a public benefit corporation will increase Wefunder’s profits due to our focus on the long term. For instance, even though we commit to donating 5 percent of our profits to programs that help create more entrepreneurs, I believe the long-term impact of this will increase our revenue and market share.”
In addition, he wrote, being a benefit corporation would enhance the company’s branding and help recruit millennials and partners.
“I don’t see any conflict,” says Alexander Stevenson, an early investor in Wefunder and the CEO of RideLink, a peer-to-peer car-sharing site in Europe. “If anything, there’s a synergy.”
“I am firmly convinced that corporations should have an obligation beyond just generating profits,” says Mark Chasan, a Wefunder shareholder and the CEO of AWE Global, a sustainable-communities developer. “Redefining ‘shareholder value’ to include social and environmental benefit is foundational to a world that functions for ‘the living’ — people and planet — rather than the ‘non-living’ — fictitious legal entities that don’t breathe air, drink water or eat food,” he adds.
Image courtesy of Wefunder