Are governance tokens a public market by another name?
Kickstarter, the crowdfunding leader, announced on Dec. 8 that it would begin work on a decentralized crowdfunding platform on the mobile-friendly Celo blockchain.
The fact that one of the best known brands on the internet is looking at adopting a blockchain strategy further cements the idea that Web2 giants are starting to take web3 seriously. But a close look at Kickstarter’s history suggests something else. It’s very possible that decentralization is a way for Kickstarter’s investors to reap the returns that have eluded them throughout the rise of the Brooklyn-based tech company, which was founded in 2009.
Investors have typically gotten their paydays one of two ways: the companies they back either go public or get acquired by a bigger company. Despite all of its success, Kickstarter has declined to do either, but tokenization has created a new business model for tech startups, and a new way for their backers to cash out.
In describing its decentralization plan, founder Perry Chen and CEO Aziz Hasan wrote in the full announcement:
“Today we’re announcing our commitment to a more open, collaborative, and decentralized future. As a first step, we’re supporting the development of an open source protocol that will essentially create a decentralized version of Kickstarter’s core functionality. This will live on a public blockchain, and be available for collaborators, independent contributors, and even Kickstarter competitors, from all over the world to build upon, connect to, or use.”
Very little is known about what the company will do, but it sounds like it will take a page from STEEM’s book, which made a flexible blockchain application for social media and blogging. Kickstarter appears set to do the same for crowdfunding. The announcement suggests that Kickstarter has every intention of running its own website on this new application once it’s ready, but, if all goes to plan, users shouldn’t see a difference.
Intriguingly, the announcement singles out governance as an important issue. “We’re establishing an independent governance lab. Initially, this lab will be committed to overseeing the development of the protocol governance,” the announcement states. “We are entering a significant moment for alternative governance models, and we think there’s an important opportunity to advance these efforts using the blockchain.”
To the Web2 fans of Kickstarter, this probably reads like so much management speak, but to people in crypto it reads differently. Out here on the decentralized web, “governance” means “tokens” and tokens mean tradeable value.
Kickstarter is a company that has been disciplined about its core values, even going so far as to convert into a public benefit corporation in 2015. A Public Benefit Corporation is not exclusively obliged to deliver value for its shareholders like most companies, but it can also consider the public interest in making business decisions. At that time, then CEO and co-founder Yancey Strickler told The New York Times that the company never wanted to sell or go public, a point that fellow co-founder and current Chairman, Perry Chen, reiterated in a 2018 blog post.
This makes Kickstarter basically the Britney Spears of the tech world. Both are widely successful and globally recognized brands that have built an astounding amount of value through their work. Spears was locked out of her own wealth by a draconian conservatorship and Kickstarter’s backers have been held in check by the company’s own commitments to principle.
Even so, creating a token could provide a path around the company’s prior commitments. We don’t know yet that a Kickstarter token (START?) will be created nor if investors will get a share of it, but it would be surprising if they didn’t. If people continue to use Kickstarter after it moves operations to the Celo blockchain, the token that governs the app should increase appreciably in value, potentially providing investors with some of the more venture-friendly returns that crypto has been so good at realizing.
A Kickstarter spokesperson declined to discuss with The Defiant whether the interests of its shareholders might be driving the pivot to blockchain.
Admittedly, Kickstarter has gotten by on much less fundraising than most companies of its generation, raising a mere $10M in 2011 from investors like Union Square Ventures, Betaworks and others, according to the Observer.
Still, it must feel complicated being a Kickstarter shareholder. The company is one of the better known brands in Web2, and its name has become synonymous with crowdfunding. It has closed over $6 billion in pledges to more than 200,000 funded projects since its founding, and yet it’s never done anything to cash in on that success and make it rain.
In 2017, at an event in Brooklyn, Strickler downplayed the returns its investors have missed, saying that shares in Kickstarter for investors and employees were more like a royalty model than a lottery ticket. Shares generate a small amount of returns and the company also conducts stock buybacks. But this seems much less exciting than the gigantic returns investors pocket when one of their bets hits the public market.
If Kickstarter is determined to eschew such markets, the blockchain has given them an out. Tokens can still generate exciting returns without giving away the company that created the token.
The plot thickens when one notes that an investor who backed Kickstarter’s 2011 fundraise, Manhattan-based Union Square Ventures (USV), has a track record of supporting Web2 companies that want to tokenize. Though called a “Hail Mary Pass” by one investor at the time, USV was bullish on Kik’s initial coin offering and frequently spoken highly of its effort to pivot to a token model.
USV also invested in the livestreaming token, Props, which gave up on its vision of a tokenized company this year.
Nevertheless, USV may still be supportive of its portfolio companies experimenting with tokenization when the investment returns can’t otherwise be realized. USV did not reply to a request for comment from The Defiant.
A Kickstarter spokesperson told The Defiant that a whitepaper is forthcoming for its app on the Celo blockchain. Whitepapers often describe a first draft token distribution for a new decentralized application, though it won’t be surprising if it doesn’t if Kickstarter really does want to spend some time studying governance first.
Indeed, Kickstarter’s leadership appears to be newly converted. In a tweet sharing the announcement, Chen wrote, “Beyond the hype and imperfections, blockchain technology is a powerful tool for human coordination. Kickstarter is embracing it in a way that — even 6 months ago — I didn’t understand was possible.”
Kickstarter might run its new application on Celo using that blockchain’s native coin, CELO, or a stablecoin that works there. Or it might create a governance token without a pre-mine for insiders, distributing it via airdrop or a fair launch. We have no way of knowing that this announcement is driven by internal pressures for the company to generate returns for its early backers, but it would make sense if it did.
Either way, it could be a good sign for Web3 even without a START token (or whatever they might decide to call it).
Kickstarter was crucial in making crowdfunding a viable path for creative people, but then Ethereum reinvented crowdfunding with the initial coin offering, which powered projects like Filecoin, Aave (then EthLend), Brave, Enzyme (then Melonport) and Cosmos.
Kickstarter’s turn to a decentralized crowdfunding model both validates tokens as a means of fundraising and the widely shared thesis in crypto that everything with any value will one day be tokenized.