The venture world is growing faster than ever, with more funding rounds, bigger funding rounds and higher valuations than at pretty much any point in history. That’s led to an exponential growth in the number of unicorns walking around and has also forced regulators and venture law researchers to confront a slew of challenging problems.
The obvious one, of course, is that with so many companies staying private, retail investors are mostly blocked from participating in one of the most dynamic sectors of the global economy. That’s not all though — concerns about disclosures and board transparency, diversity among leaders as well as employees, whistleblower protections for fraud and more have increasingly percolated 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 venture law is today, TechCrunch invited four law professors who specialize in the field and securities more generally to talk about what they are seeing in their work this year and argue for how they would change regulations going forward.
Our participants and their arguments:
Yifat Aran, an assistant law professor at Haifa University, argues in “A new coalition for ‘Open Cap Table' presents an opportunity for equity transparency” that we need better formats for cap table data to allow for portability. That 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 law professor at Cardozo School of Law, argues in “The next Theranos should be shortable” that private company shares of unicorns should be able to be scrutinized and traded by short sellers. Since venture investors have little incentive to sniff out frauds post-investment, short sellers could bring a valuable perspective into the market and increase capital efficiency.
Jennifer Fan, an assistant law professor at the University of Washington, argues in “Diversifying startups and VC power corridors” that in addition to board mandates related to diversity (which have passed 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 the tech world to the many folks it overlooks.
Finally, Alexander I. Platt, an associate law professor at the University of Kansas, argues in “The legal world needs to shed its ‘unicorniphobia’” that we should scrutinize the rush to change our securities regulations when we've created so much value with startups. For every Theranos, there is a Moderna, and adding more rules and disclosures may not prevent the problems of the former and may actually stop the progress of the latter.
The once quiet research literature of venture law has been energized with the arrival of a reform-minded camp in the halls of power in DC. TechCrunch will continue to report and bring diverse perspectives on some of the most challenging legal and regulatory issues facing the tech and startup world.