CouchSurfing.org is a Silicon Valley enterprise that values the term “good” more than “growth.” For seven years, the nonprofit organization turned away venture-capital investment offers, preferring to remain independent and focused on its community of users. After its 2011 application for 501(c)(3) status was denied, however, CouchSurfing made the decision to go corporate. In August, officials announced a $7.6 million round of funding and the group’s transition from a nonprofit to a B Corporation.
“It turned out to be the only path we could take,” co-founder and CEO Daniel Hoffer (pictured below) says, explaining that CouchSurfing didn’t fit into the IRS’s criteria for nonprofits. “But, ultimately, it turned out to be the best path to take.”
B Corporation, short for “Benefit Corporation,” is a relatively new classification for socially responsible businesses operating in California, Hawaii, Maryland, New Jersey, Vermont, and Virginia. (Legislation is pending in other states, too.) To become and stay as a B Corporation, a company must be regularly audited by a certifying body, the B Lab, that decides whether the business is living up to its promise to create some general benefit for society and its shareholders. Whereas a standard corporation prioritizes profits, a B Corporation places equal weight on its finances and its social, environmental, or philanthropic goals — and makes business decisions accordingly.
CouchSurfing secured its funding through Benchmark Capital and Omidyar Network, two leading investment firms. “We were looking for investors that were compatible with our objectives to build a strong and lasting socially responsible organization,” Hoffer says. Like any investor-backed company, CouchSurfing is sensitive to the need to maximize shareholder value, he adds, “but we also have an explicit commitment to our community, staff, and broader social mission. Those are our top priorities.”
B Corporations are held to a higher level of transparency and legal accountability. First, they must pass the B Impact Assessment exam. (Hundreds of companies have failed in answering its 200 questions.) If they make the cut, they must amend their corporate governing documents and file them with state authorities, also paying a yearly fee ($500 to $25,000). B Corporations also must re-certify their business every two years.
Any company that has a social or charitable goal built into its business model — such as giving part of its profits to philanthropic efforts or establishing aggressive environmental goals — can become a B Corporation. Does your company specialize in fair trade, organic, or eco-friendly products? Do you donate a large amount to charities? If so, your enterprise may be a good candidate.
What makes CouchSurfing a B Corporation is its social mission of helping people from different countries learn about one another’s cultures. This goes beyond just letting someone crash on their sofa overnight for free, Hoffer says. “We want a world where everyone can explore and connect, regardless of their financial situation.”
Another example of a B Corporation is Method, a San Francisco-based maker of eco-friendly household products, which became one of the nation’s first B Corporations in 2007. “Rather than just being a business that talks about ‘people, planet, and profit,’ we have put it into our corporate structure,” Method co-founder Adam Lowry told Inc. magazine.
Being a B Corporation comes with benefits, too. Members of the B Corp Community support one another by offering discounted services, such as web design and headhunting. Through their charitable foundations, many other companies also provide perks to B Corporations. For example, Intuit supplies free software, and Salesforce.com gives discounts to them. B Lab also offers assistance with ad campaigns and publicity, which can help B Corporations differentiate their brands and promote their missions.