Wefunder, Inc. is now Wefunder PBC.
On Wednesday, Wefunder will become the first investment crowdfunding platform to become a public benefit corp., a legal designation that hardwires a company’s social mission into its charter. In Wefunder’s case, that mission is to “defend the American Dream.”
Wefunder follows in the footsteps of Kickstarter, the rewards-based crowdfunding platform, which became a public benefit corp. (PBC) in September 2015. Other benefit corps include Patagonia and King Arthur Flour, but they are relatively rare among tech and finance companies. Wefunder also plans to apply to become a B Corp., a separate certification that is not legally binding. PBCs, or benefit corps as they’re also known, commit to creating public benefit and sustainable value in addition to generating profit. In most states they are required to report on their adherence to their goals and impact every two years. Kickstarter plans to release its first such report in Feb 2017.
Wefunder’s charter begins by declaring: “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 do so, the company lists nine commitments, including donating 5% of its profits each year to fund grants, training, and mentorship for founders; offering paid time-off and travel costs for employees to mentor founders across the country; working with community leaders to revitalize their Main Streets; and working with Congress to modernize laws.
“This is a great step and certainly an excellent public relations move for a crowdfunding platform which allows them the flexibility to set broader goals for their operations,” said Georgia Quinn, a lawyer with Ellenoff Grossman & Schole, and the CEO of iDisclose, a legal tech company. She added that crowdfunding platforms set up as LLCs (versus corporate structures) have the flexibility to create operating agreements that reflect their social missions and values.
Protecting the Mission
Since 2010, 31 states have enacted benefit corp. legislation and another half-dozen or so are working on it.
The structure was created to counter the “short-termism” and shareholder pressure to single-mindedly pursue profits over purpose. PBCs are legally required to consider and balance the impact of their decisions not only on shareholders but also on their stakeholders and the public. That can protect a company’s mission even as it takes on new investors, changes leadership or ownership, or goes public.
Wefunder, which has its headquarters in San Francisco, became a PBC under Delaware law. That involves drafting an amendment to its certificate of incorporation and obtaining approval from the board of directors and a majority of stockholders. Once approved, the amendment must be filed with the Secretary of State of Delaware.
For Wefunder, that was no small feat: the company has raised more than $5 million to date from over 250 investors, mostly through its own platform. By law, two-thirds of those investors must sign off on the plan.
The Y Combinator alum has conducted about 75% of the Regulation CF offerings since May, which have included a sprinkling of B Corps and PBCs, such as the successfully funded Beta Bionics.
Wefunder is kicking off a new round of funding for itself with a preferred share offering that values the company at $30 million (pre-money).
In a letter sent to shareholders late last week, Wefunder cofounder & CEO Nick Tommarello (pictured above with teammates, second from left) explained the decision to become a PBC:
“Put simply, a public benefit corporation does not single-mindedly maximize share value at all costs. Decisions must be balanced between all stakeholders, such as investors, employees, and the impact on society. Personally, I see PBC’s as similar to standard corporations as they were commonly understood a few decades ago… until it became fashionable to seek short-term profits above all else. PBC’s are correcting that trend.”
He listed several benefits that PBS status could bring, including branding and competitive differentiation, recruiting Millennials and helping attract partnerships.
Investors signed on pretty quickly—more than 120, or about half, signed in the first 24 hours. By Monday, more than two-thirds had assented, although notable investors including Maverick Capital and Andreeson Horowitz were absent. A couple of investors expressed concern that PBC status would hurt Wefunder’s profit potential or hinder future exit opportunities.
Tommarello tried to head such fears off in his overture: “I want to make it very clear: Wefunder is a for-profit company. Further, I believe becoming a PBC will increase Wefunder’s profits due to our focus on the long-term. For instance, even though we commit to donating 5% of our profits to programs that help create more entrepreneurs, I believe the long-term impact of this will increase our revenues and market share.”
Wefunder, which is not yet profitable, had revenues of $200,000 in September.
Investors were mostly supportive of the move. “I am firmly convinced that corporations should have an obligation beyond just generating profits,” said Mark Chasan, a Wefunder shareholder and the CEO of AWE Global, a sustainable communities developer. “It’s important for corporations to consider the benefit of all stakeholders in their ecosystem including customers, shareholders, employees, strategic relationships, the communities they do business in, people and planet.”
Plus, it’s good business. “Reputation is becoming a key differentiator in purchasing decisions and is based upon such things as providing quality products and services at reasonable prices, corporate integrity and engaging in socially responsible practices,” added Chasan.
Wefunder’s move could spur other crowdfunding platforms to follow suit, at least those that want to stand out for their values. As Kickstarter cofounder Perry Chen told B Magazine: “The public benefit corporation form is radical because it frees and protects leaders to pursue a mission and values without the ambiguity of whether this pursuit conflicts with the accepted primary mandate of a normal corporation: to maximize shareholder value. If not part of the legal framework — as the PBC form allows — a company’s mission and values will eventually become secondary to the pursuit of profit.”