Sep 11 2021
The world of venture capital is growing faster than ever, with more fundraising rounds, bigger fundraising rounds, and higher valuations than at just about any time in history. This has led to an exponential growth in the number of walking unicorns, and has also forced regulators and risk law researchers to face a host of difficult issues.
The most obvious, of course, is that with so many companies remaining private, most retail investors are barred from participating in one of the fastest growing sectors of the global economy. That’s not all though – concerns about disclosures and board transparency, diversity among leaders and employees, whistleblower protections against fraud, and more have become increasingly prevalent. in legal circles as unicorns multiply and push the boundaries of what our current regulations were designed to accomplish.
To explore where the cutting edge of risk law stands today, TechCrunch invited four law professors specializing in the field and securities in general to talk about what they see in their work this year and how they would change the regulations in the future.
Our participants and their arguments:
- Yifat Aran, Assistant Professor of Law at the University of Haifa, says in “New Coalition for ‘Open Cap Table’ Presents Opportunity for Fairness Transparency” that we need better formats for capitalization table data in order to to allow portability. This will increase transparency for shareholders, including employees, who are often left in the dark about the true nature of a startup’s capital structure.
- Matthew Wansley, an assistant professor of law at the Cardozo School of Law, argues in “The next Theranos should be shortable” that the shares of private unicorn companies should be able to be reviewed and traded by short sellers. Since venture capitalists have little incentive to detect fraud after investing, short sellers could provide valuable insight into the market and increase capital efficiency.
- Fan of Jennifer, an assistant professor of law at the University of Washington, says in “Diversifying startups and VC power corridors” that in addition to the board mandates related to diversity (which have been adopted in a number of states) , startups need to create more incentives around diversity in all their relationships, including with their employees, with VCs and with the LPs of their VCs. A more comprehensive and systematic approach will better open up the tech world to the many people it neglects.
- Ultimately, Alexander I Platt, associate professor of law at the University of Kansas, says in “The legal world must get rid of its ‘unicorniphobia'” that we should examine the rush to change our securities regulations as we have created so much value with it. startups. For every Theranos, there is a Moderna, and adding additional rules and disclosures may not prevent the first from having problems and may in fact halt the progress of the second.
The once quiet research literature on risk law was revitalized with the arrival of a reformist camp in the halls of power in Washington. TechCrunch will continue to report and bring diverse perspectives on some of the most difficult legal and regulatory issues facing the tech and startup world.