The Future or Fancy? An Empirical Study of Public Benefit Corporations
68 Pages Posted: 11 Aug 2019
Date Written: August 7, 2019
The public benefit corporation ("PBC") is one of the most hyped developments in corporate law. The reason is the PBC’s potential social purpose. PBC directors are required under their fiduciary duties to consider purposes other than profits in decision-making. These new forms are hailed by their champions as offering a new hope for a reformed capitalism. Critics have assailed them as unworkable, and a thin disguise for ordinary corporate profit-seeking behavior.
What has been lacking in this debate is evidence. We aim to fill this gap by conducting an empirical study of early-stage investment in PBCs. Early-stage investment, consisting of venture capital and similar funds, presents an interesting test case for PBC funding, because the investors often have profit-maximizing incentives and fiduciary duties of their own. Using our novel dataset, we can discern whether for-profit investment is occurring in PBCs, and if so, whether it is different in kind from ordinary early stage investment.
We find that PBCs are receiving investment at significant rates, and that investment is coming from typical sources of venture capital including traditional, profit-seeking VC firms — Sequoia Capital, Andreessen Horowitz, and others. We also find that venture capital funds are investing in more consumer-facing industries, as well as investing smaller amounts than traditional investments.
We conclude that PBCs are attracting for-profit investment, supporting arguments that these new forms may be able to earn an acceptable rate of return while serving various purposes. We use these results to develop a theory of future PBC development, which asserts that investment in PBCs is likely to remain siloed in smaller, newly-formed firms. We conclude that widespread adoption of the form will take time, as network effects build and experience with the form becomes embedded within the entrepreneurial ecosystem. The PBC is not a failure. But it is in its infancy and any full embrace will take a significant period of time.
Keywords: Public Benefit Corporations, Venture Capital, For-Profit Investment
JEL Classification: K20, K22, G34
Suggested Citation: Suggested Citation