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Businesses

Kickstarter Just Did Something Tech Startups Never Do: It Paid a Dividend (bloomberg.com) 103

Joshua Brustein, reporting for Bloomberg: In early March, Kickstarter quietly sent shareholders a dividend. In the wider world of business, such an action would be unremarkable. More than 80 percent of the companies in the S&P 500 pay dividends, and many smaller companies do, too. But divvying up quarterly profits with shareholders is unheard of among tech startups. People who follow the venture capital industry were hard-pressed to come up with a single example of a VC-backed startup that has ever paid regular dividends. Doing so would be a rejection of the industry's basic math. VCs bet that they can find the few companies that will generate enormous payouts by going public or getting acquired; the rest fail. There's not supposed to be anything in between. "It sounds strange for a VC-backed company as it means they're taking out and distributing money versus investing it in the business," said Anand Sanwal, the chief executive officer of research firm CB Insights. Paying a dividend, which the company didn't make public, is just the latest example of Kickstarter's heterodoxy.
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Kickstarter Just Did Something Tech Startups Never Do: It Paid a Dividend

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  • by ooloorie ( 4394035 ) on Friday June 17, 2016 @05:04PM (#52340011)

    Tech startups need capital, and reinvesting the profits they make is an easy way of getting that. If they pay out their profits as dividends and then raise more capital by issuing more shares, they pay a premium for that capital and take a risk as well. Paying dividends also screws shareholders because dividends are taxable immediately, while the capital gains from reinvestment only are taxed when the shares are sold.

    • by NotInHere ( 3654617 ) on Friday June 17, 2016 @05:09PM (#52340043)

      Paying dividends also screws shareholders because dividends are taxable immediately

      Kickstarter has declared itself a "public benefit corporation": https://www.kickstarter.com/bl... [kickstarter.com]

      According to TFA that includes to not exploit tax loopholes. Very sad that companies that "just" pay their taxes are regarded as "public benefit corporation", and are not the norm.

      They use the infrastructure, they benefit from the state keeping them secure. And they expect to not pay anything for it.

      According to TFA, Kickstarter is going down the "never IPO" path.

      • According to TFA that includes to not exploit tax loopholes.

        Choosing to reinvest instead of paying dividends is not a "tax loophole", it's the essence of growing businesses.

        They use the infrastructure, they benefit from the state keeping them secure. And they expect to not pay anything for it.

        That's total bullshit. All corporations pay for infrastructure through property tax, sales tax, business tax, and (effectively) income tax.

        US corporations also pay some of the highest taxes in the world, which is why m

        • by Hylandr ( 813770 )

          And they may well pay the price for it and become irrelevant.

          More of the "Do it the way I say you should or you will fail declarations".

          I also smell another shill:

          http://www.americansfortaxfair... [americansf...irness.org]

          http://www.thefiscaltimes.com/... [thefiscaltimes.com]

          • The US corporate income tax system is very much out of kilter, with some well connected corporations getting large tax breaks and others getting screwed.

            Now, if you believe that US companies should be taxed in the US on their worldwide income (as your links suggest), it follows logically that they can't also be taxed on their local income in, say, Germany or Japan, since otherwise you end up with marginal tax rates that are way too high. In addition, it also follows that the same should be true in reverse.

            • by Hylandr ( 813770 )

              Detailed discussions of Tax brackets for corporations is beyond my interest or knowledge for the same reason I have no interest in restoring a vehicle that's been crushed.

              In my opinion both entities are in the same state.

              As for the charge of "shill", that bogus accusation is the last resort of the ignorant and incompetent.

              No, that's the word to describe astro-turfers or professional trolls pushing a propaganda set by their employers financial or political motivations. I could be wrong but if it posts like a duck, and debates like a duck chances are high it's not a Llama, but bloody duck.

              • Detailed discussions of Tax brackets for corporations is beyond my interest or knowledge for the same reason I have no interest in restoring a vehicle that's been crushed.

                Because you are terminally stupid? Because you are a proto-fascist?

                No, that's the word to describe astro-turfers or professional trolls pushing a propaganda set by their employers financial or political motivations.

                Indeed, I have a strong financial interest in corporations doing well: my retirement and economic well being depend on it. So

                • by Hylandr ( 813770 )

                  Because you are terminally stupid? Because you are a proto-fascist?

                  Ad-Hominem Attack; Liberal Detected.

                  • An "ad hominem" would be to say that your argument is wrong because of who you are. I simply gave a name to your political ideology and your way of thinking ("detailed discussions of Tax brackets for corporations is beyond my interest or knowledge"). You just want to stick it to corporations without really known why or what the consequences are. That pretty much describes the early years of European fascism.

                  • You mean like the Ad Hominem attack you opened this thread with? I guess that makes you a liberal too, huh?
        • Re: (Score:3, Insightful)

          by rgmoore ( 133276 )

          US corporations also pay some of the highest taxes in the world, which is why many of them are moving overseas.

          More accurately, the US has one of the highest nominal corporate tax rates in the world, which is why US corporations work so hard to exploit (and lobby to create) the many loopholes in the system. The US corporate tax system is an excellent example of a case where it would be far better to lower the tax rate and broaden the tax base by eliminating loopholes.

          • Yup, if you're paying significant taxes as a corporation then you need to get better accountants. Companies do not stay in the US because of patriotic loyalty, they stay because they're making good money.

          • How about instead we don't tax the corporations at all, per se, and just tax the people who own them instead. If we implemented my other suggestion below [slashdot.org], for all corporate profits to be mandatorily paid out as dividends (which can then be automatically reinvested or not at the shareholder's preference), and that would happen automatically, because dividends are taxable income. This would shift the tax burden onto high-income people, especially those who own and control big chunks of the economy, and away f

          • In addition to having one of the highest nominal corporate tax rates in the world, the US also has one of the highest median corporate tax rates as well (i.e., after "loopholes"). If it didn't, US corporations wouldn't be trying to hard to get taxed overseas, and that is on top of high capital gains taxes. Sweden, incidentally, has one of the lowest median corporate tax rates.

            http://www.forbes.com/pictures... [forbes.com]

            http://taxfoundation.org/artic... [taxfoundation.org]

      • Paying dividends versus investing doesn't change Kickstarter's taxes, only (potentially) the taxes that the individual shareholders pay.
    • Maybe they just don't foresee a need for the capital, and would rather let their shareholders decide where to invest it rather than have to act as a steward of unneeded funds?

      • by Darinbob ( 1142669 ) on Friday June 17, 2016 @09:30PM (#52341281)

        A lot of companies don't see the need to grow continuously. When the business is stable and now growing then paying dividends is the common to share profits with the shareholders. Who else do you give profits to other than the owners? Very often the person who started the business is desperate to get some of that money back (legally) to pay off bank loans used to start the business. So there's a mix of putting some profits back into the business and some profits to pay the owners.

        A company that gives out dividends is a good sign, it says that the company is confident about profitability. You don't see this much in tech startups because tech startups are usually risky ventures run by risky people who are not funded by banks who want a regular loan payment but by VCs who want to strike it rich also.

        • Absolutely.

          Kickstarter isn't in the business of directing investment itself, just giving others a platform to do that. And really, outside of a continuous marketing budget and platform upgrades to accommodate expected growth, if they're taking in much more money than what those two require (along with regular operating expenses, reserving funds for emergency, etc), then they very well might have met the goal they set for themselves, and feel comfortable making distributions.

          Kickstarter isn't an eBay type si

    • by EnsilZah ( 575600 ) <EnsilZah@@@Gmail...com> on Friday June 17, 2016 @05:34PM (#52340199)

      They serve text and and video, and in exchange they take 5% of the money pledged to projects.
      I'm sure they have their servers and a team to maintain and keep their code and design current all covered.
      So what exactly do they need capital for?
      Do you expect them to branch into unrelated fields, build their own OS inside a browser, explore how 3D-printed IoT VR-goggles can be leveraged for crowdfunding just because they have some spare cash?

      • So what exactly do they need capital for?

        Advertising, insurance, buying out their competitors, for example.

        Do you expect them to branch into unrelated fields

        No, but they might branch out into related fields, like makerspaces, startup labs, business support services, insurance, legal services, escrow services, etc

      • by Hylandr ( 813770 )

        This guy gets it.

        Just because you can afford to do something doesn't mean you are *compelled* to do it.

        Do your ONE THING and do it well. The rest is Dividends.

        I say bravo!

    • by lgw ( 121541 )

      It's certainly weird for a tech startup, but it's weird in a very Kickstarter-ish way, isn't it? Good on 'em, says me.

      • It's not such a good thing if they run Kickstarter into the ground.

        • by lgw ( 121541 )

          I'm sure they're watching their cashflow: it's pretty much the central focus of all small businesses. Paying a dividend signals that they're not planning to expand into more kinds of business (at least not capital-intensive kinds), and protects against hostile takeover, both of which which personally I like. Grow at what you know you're good at, not by random nonsense.

          • Paying a dividend signals that they're not planning to expand into more kinds of business

            That would be a pretty costly signal to stockholders in a publicly traded corporation. I think in this case, the answer is much simpler: Kickstarter isn't publicly traded. Far from being a noble gesture, that means that paying a dividend to themselves is a simple way in which the owners of Kickstarter can take out money for themselves.

    • by es330td ( 964170 )
      Paying a dividends demonstrates financial viability. They significantly increase their ability to raise capital showing that they aren't losing money.
    • the capital gains from reinvestment only are taxed when the shares are sold.

      Not paying dividends does not guarantee rational reinvestment much less subsequent growth:

      "... by late 2001, Oracle Corp. had piled up $5 billion in cash. Cisco Systems had hoarded at least $7.5 billion. Microsoft had amassed a mountain of cash $38.2 billion high - and rising by an average of $2 million per hour. Just how rainy a day was Bill Gates expecting, anyway? ... In short, most managers are wrong when they say that they can put your cash to better use than you can. Paying out a dividend does not guarantee great results, but it does improve the return of the typical stock by yanking at least some cash out the managers hands before they can squander it or squirrel it away."

      - Jason Zweig "The Intelligent Investor, Revised Edition"

      I only invest in shares that pay dividends. My strategy is to use my dividends to buy new shares in other companies. This increases my diversification, and since those companies pay dividends too, results in exponential, albeit slow, growth. I view tax as the price of this defensive posture, just like I view more transaction fees as the pric

      • Not paying dividends does not guarantee rational reinvestment much less subsequent growth.

        Correct.

        I only invest in shares that pay dividends.

        That's just stupid. If a company doesn't pay dividends and instead keeps its profits in cash or reinvests them, you can simply take the money out of that stock and diversify by selling shares. The point is: keeping the profits gives you, as a shareholder, more options. If they pay (cash) dividends, you lose options and are forced to pay taxes.

        • you can simply take the money out of that stock and diversify by selling shares

          This strategy relies on the stock price constantly growing and assumes that the growth is dependent on the profits being kept, and that the growth can be maintained, and that the growth is by a greater dollar amount than the dividend otherwise would be. These are assumptions I am not willing to make and if any of them is false I'm better off receiving the dividend.

          • This strategy relies on the stock price constantly growing

            It's not a "strategy" and it doesn't "rely" on anything. If a company has $5 million in profit and doesn't pay it out as a dividend, the stock goes up on average by as much as the dividend would have been. At that point in time, you can rebalance your portfolio the same way you would have done with a dividend payment.

            and that the growth is by a greater dollar amount than the dividend otherwise would be

            No, it assumes that the growth related to not pay

            • No, it assumes that the growth related to not paying the dividend is, on average, equal to the dividend, which it is.

              [Citation needed]

              there are a lot of irrational investors, and you are evidently one of them.

              See also: ad hominem [wikipedia.org].

              This [amazon.com] is the book I base my strategy on. Its author is Benjamin Graham, the mentor of the better known Warren Buffett. If you think my implementation is wrong I'm interested in what you have to say (with references to the points made this or some other authoritative source, of cou

              • This is the book I base my strategy on. Its author is Benjamin Graham

                I seriously doubt that Benjamin Graham advised Warren Buffet to pay taxes unnecessarily. In fact...

                Berkshire Hathaway does not pay a dividend because its chairman and CEO, Warren Buffett, believes it is more auspicious to allocate the company's earnings in other ways. In particular, Buffett prefers to reinvest profits in things that allow his company to improve its efficiency; expand its reach; create new products and services and improve

    • Dividends used to be the standard way to get paid by owning stock, especially with blue chip companies. This is basic profit sharing to the shareholders. Now in the "new" economy it's all about growth, growth, and more growth. The money is made through speculation instead, hoping that the stock price rises and that you can sell it before it goes back down.

      For example, if you invest in uncle Joe's restaurant you can ask that you be paid a percentage of the profits each year if there are any. So fine, pay

      • Dividends used to be the standard way to get paid by owning stock, especially with blue chip companies. This is basic profit sharing to the shareholders. Now in the "new" economy it's all about growth, growth, and more growth. The money is made through speculation instead, hoping that the stock price rises and that you can sell it before it goes back down.

        There is no "speculation" involved. Let's say a company has 1 million outstanding shares and makes a profit of $5 million. If it pays that entire profit a

        • Only if all investors followed a value investment strategy, which they don't. A lot of investors may see that profit as a big positive upturn in the company and want to get in on that rising action, and so will pay more than just the $5/share to get in on that. Or that may be a big decrease in profits from last quarter, kill everyone's faith in the company, and cause lots of investors to sell for cheap just to get out now before it gets worse. Stock prices are set by markets, what people are willing to buy

          • What I said is true independent of what irrational investors believe.

            • No it's not, because what those perhaps-irrational investors believe (in speculation) is what sets the market value of the shares and thus what you could buy or sell them for. Pointing out that the market price per share is different from the net asset value per share isn't magically going to make the market (composed mostly of possibly-irrational speculative investors) sell to you or buy from you for that net asset value, and it's not like you can force the company itself to take back your share (or issue

              • No it's not, because what those perhaps-irrational investors believe (in speculation) is what sets the market value of the shares and thus what you could buy or sell them for.

                Irrational investors can't indefinitely misjudge stock values; any who do run out of money. Remember that for every seller there is a buyer and vice versa. Money accumulates with the people who make correct decisions. On average, dividend payments and stock price changes are related rationally. On average, in the absence of taxation, a

        • Most of these tech companies don't make a profit, Plenty of them never will make a profit, ever. So people are speculating based upon an analyst's wild ass guess as to what the company is worth. A company that pays dividends gives you $5/share and that's money in the bank if you like, or you can reinvest also. Shares don't go up just because the profits are rolled into growth, they shares only go up if the market wants them to go up (usually because an analyst gives a good rating).

          Things did used to be m

          • Most of these tech companies don't make a profit, Plenty of them never will make a profit, ever. So people are speculating based upon an analyst's wild ass guess as to what the company is worth.

            That's completely independent of whether a company pays out their profits as dividends or puts them in the bank. Balance sheets are not based on analyst's guesses.

            Things did used to be more stable back when there were fewer investors and most investors were professionals.

            Well, no, not really. [wikipedia.org] Check other measures of

    • Paying dividends also screws shareholders because dividends are taxable immediately

      Every company I have shares in gives the option of how the dividend is paid out, in dollars or in additional shares. The latter is not taxable the same way as cash and doesn't screw over anyone.

      • If you are given the option of receiving your dividends in either stock or cash form, then the dividends are taxable even if you choose to take them in stock form. The same is true for DRIPs.

  • Tech Company? (Score:5, Insightful)

    by friesofdoom ( 3817155 ) on Friday June 17, 2016 @05:06PM (#52340025)
    Kickstarter is a tech company? Really? What tech do they manufacture and sell? I was obviously under the misunderstanding that they were a crowd funding company... Guess i was wrong and should be waiting for my new KickStarter OS or phone or something...

    Or has the definition of tech company changed to any company that uses 'tech'? By that standard my dads building company is a tech company... He uses a computer too!
    • Most tech startups that I see have little to nothing to do with technology either. If they're online then the masses call them "tech". After all they called Amazon a tech company when all it did was sell books.

    • Kickstarter is a tech company? Really? What tech do they manufacture and sell?

      False hopes. But more seriously, they're a company that's all-tech. A handful of people, and a website. The only thing they manufacture and sell (or rent, anyway) is their website. That makes them a tech company. The tech is not impressive or groundbreaking, but it's all there is.

      Or has the definition of tech company changed to any company that uses 'tech'? By that standard my dads building company is a tech company... He uses a computer too!

      Kickstarter's product is the use of their website. Your dad's building company's product is presumably buildings, thus they're a building company.

  • I think it's much more surprising that so many people spend so much money on unprofitable companies.
    • It's not surprising to me that "so many people spend so much money on unprofitable companies" - all you need is one fifty-to-one hit and you're way ahead on the nine total losers you threw money at. It's all about greed. Lovely, eternal greed.
      • If you're talking about VC-level investment, that model makes economic sense.

        Of course, if you find one 50:1 hit and 99 total losers instead, you're toast.

        Even if you find one 50:1 hit and only back 9 losers, you're still no better off than someone who consistently backs modest 5:1 success stories. It always surprises me that we don't see more successful investors using this sort of strategy, given that by the time you're closing VC funding rounds your business isn't likely to be some random six-month-old s

        • Reliable 5:1 success stories are very difficult to find. Many businesses with sound business models, good people, and in the right place at the right time fail. That being said, there are funds that to try to only pick winners; they invest in groceries (the new chains in Chicago, Mariano's and Fresh Thyme were created this way), rental equipment companies, niche manufacturers, etc... of course, they make the founders co-invest, and really prefer businesses that already have a proven business model. This
          • Reliable 5:1 success stories are very difficult to find.

            True enough, though they are still much easier to find than 50:1 success stories.

            Many businesses with sound business models, good people, and in the right place at the right time fail.

            That seems rather pessimistic. Certainly many businesses fail, but a great deal of the time when they do, it is precisely because one of the elements you just mentioned was missing. A business that really has found product-market fit, has good people running it, and has access to the resources it needs for those people to exploit that fit is basically a money-printing machine.

            I suspect the issue for VCs is simply that by the ti

    • Its the biggest ponzi scheme in human history. I'd have liked to say that the burst of the bubble would be earth shattering, but since 2008 we know that if you succeed to bloat a bubble right in front of the eyes of the regulators (who do nothing), and the market's trust suddenly vanishes, the state will bail you out.

      Either way, the funders have made the money of their lifetimes.

      • The problem is that this scheme only works for as long as the state has the money to bail you out.

        Who's going to pay for the upcoming bailout? I only know who cannot.

  • by atticus9 ( 1801640 ) on Friday June 17, 2016 @05:15PM (#52340097)
    Start-ups don't pay dividends, there's higher return opportunities investing back in the company for share-holders. Paying a dividend means that all those opportunities are saturated so you might as well give cash back to investors than hoard it. It seems early to me, but maybe they've reached that point. I'd love to know what the yield was.

    It's not unheard of for angel investors in general. They'll invest in 10 start-ups expecting 4~5 will fail, 3~4 will stay in business but never go anywhere, and 1~2 to be 10x successful.
    • But changing that balance is actually good; it reduces risk and ultimately reduces the return companies must generate. Also, getting investment funding when you actually show a profit is much easier, including conventional means such as a line of credit for short term or term loans for anything over a year.

      • I really dislike the attitude of demanding huge growth all the time where investment is the same thing as speculation. I'd like to go back to a time when getting a predictable return on investment via interest or dividend was considered the smart thing to do.

  • Every dollar a corporation makes in profits should go to the shareholders as dividends. It's then up to those shareholders to decide where to reinvest in the company, growing their stake in it as they do so and others don't, or to slowly be cashed out as others do so and they don't. Each shareholder should be able to register their preference when they buy into the company; give me my money, or reinvest it, or perhaps even a percentage. The default should probably be to reinvest it, but shareholders are ent

  • SubjectIsSubject (Score:5, Insightful)

    by p0p0 ( 1841106 ) on Friday June 17, 2016 @05:25PM (#52340137)
    Kickstarter has been around since 2009. When is a company no longer considered a "startup"?
    • by fibonacci8 ( 260615 ) on Friday June 17, 2016 @05:31PM (#52340179)
      Right after chapter 11?
    • by erice ( 13380 )

      Kickstarter has been around since 2009. When is a company no longer considered a "startup"?

      Generally, that mile stone is the IPO. Dividends begin some years after that, if ever. Since they are paying a dividend now, it suggests that Kickstarter does not intend to ever go public. Uber seems to be following a similar plan. I guess they don't want the scrutiny and regulation that comes with being a publicly traded company. I can understand that but on the other hand, some of those regulations are there for good reason.

      • I was at a company that was hugely profitable before being an IPO. There was little consideration about becoming a public company because there was no need for it. Lots of people making lots of money (except for me). This was shortly before the dot-com boom. Then the owners decided that being public was a good thing and went through the IPO process. This annoyed a lot of people because of all the new rules they had to follow (making the books public, telling the truth, etc). Later they went bust (this

    • Kickstarter has been around since 2009. When is a company no longer considered a "startup"?

      Once they meet their funding goal.

  • by OverlordQ ( 264228 ) on Friday June 17, 2016 @05:30PM (#52340177) Journal

    All the money they're paying out to investors comes from all those scams projects that earn KS a nice percentage.

  • EOM. End of Story.

  • Revealed: The secret that other startups hate!

    Fuck you Slashdot, where has my intelligent news feed gone?

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