Catching Disruption: Regulating Corporate Venture Capital

Sesame Street, Walgreens, 7-Eleven, General Motors, Campbell Soup—these are not the names of companies that come to mind when thinking about the startup world. Yet, each of these companies started its own corporate venture capital arm in the last eight years. Corporate venture capital (“CVC”)—equity investments in external startups made by corporations or investment entities designated by corporations—no longer play a minor role in venture capital; they have become an influential force in the field. Business scholars have been at the forefront of studying this newly powerful phenomenon. Thus far, however, legal scholars have overlooked CVCs. Legal scholars—and many in the venture capital community—see only two players: traditional venture capital firms and entrepreneurs. The failure to appreciate the significance of CVCs as a third major player impoverishes theoretical and practical accounts of venture capital. This Article reframes the legal discussion of venture capital to incorporate key shifts wrought by CVCs in areas from corporate governance to risk allocation

Amplifying the Washington Pro Bono Patent Network Through Legal Consults

The USPTO hosted a series of presentations related to patent pro bono work. This presentation discusses how the legal consult structure the University of Washington School of Law Entrepreneurial Law Clinic developed brings more visibility to the work of the Washington Pro Bono Patent Network

Regulating Unicorns: Disclosure and the New Private Economy

“Unicorns” are private companies with valuations of a billion dollars or more. As their name indicates, unicorns were originally so rare as to be almost mythical. But Uber and other technology companies have ushered in a new era: we now have a blessing of unicorns, each one of which has the potential to transform financial and cultural norms. Yet from a legal perspective, these behemoths are regulated just like their much smaller, non-mythical counterparts. Unicorns’ dizzying valuations have not been matched with any expansion or recalibration of regulation. As a result, vital information about these companies remains secret, perhaps for years, until an IPO moves a unicorn into the public realm. This Article argues that this one-size-fits-all regulatory framework is insufficient. Though nominally private, the size and influence of unicorns renders their effect in the marketplace much more like that of a publicly held corporation. The fate of a unicorn affects stockholders, employees, and regional or even national economies. Regulation of unicorns should recognize that outsized power. As a result, this Article proposes rethinking the current regulatory regime in the context of unicorns. This Article is the first to critique the unicorn phenomenon within the securities regulation framework. It argues for enhanced disclosure requirements that will alleviate the risks of unicorns without restraining their innovation. It concludes by suggesting what types of disclosures are necessary, how such information should be disclosed, and when it should be disclosed

Nontraditional Investors

In recent years, nontraditional investors have become a major player in the startup ecosystem. Under the regulatory regime of U.S. securities law, those in the public realm are heavily regulated, while those in the private realm are largely left alone. This public-private divide, which is a fundamental organizing principle of securities law, has eroded with the rise of nontraditional investors. While legal scholars have addressed the impact of some of these nontraditional investors individually, their collective impact on deal terms, deal timelines, due diligence, and board configuration has not been discussed in a holistic manner; neither has their impact on the investor landscape and securities law. This Article provides the first descriptive account of nontraditional investors throughout startups’ lifecycles and the normative implications of their participation in the venture capital ecosystem. Ultimately, nontraditional investors helped to facilitate the rise of unicorns which contributed to the “breakdown” of the public-private divide, with the attendant problems related to investor protection, corporate governance, valuation bubbles, and the like. Once thought of as outliers, nontraditional investors have influenced the venture capital market and the ways in which deals were conducted in significant ways. They drove capital investment trends and created an increasingly competitive deal environment in venture capital. Outsized funds became the norm, and the size and valuation of venture capital deals at each stage of a startup grew ever larger. In some cases, it led to less investor oversight and due diligence. Although one of the hallmarks of venture capital investors is their hands-on approach, that is not the case for all of the nontraditional investors. Board dynamics and economics and control – the two underlying principles of venture capital deals – shifted in favor of the founders as nontraditional investors proliferated and the economy remained strong. However, the recent economic downturn has led to a recalibration of nontraditional investors’ influence. In this environment, founders are no longer able to dictate the terms of venture capital financings, the investment pace has slowed, and while some nontraditional investors may retreat and reassess, their influence in the venture capital ecosystem will continue to reverberate in the years to come

Nontraditional Investors

In recent years, nontraditional investors have become a major player in the startup ecosystem. Under the regulatory regime of U.S. securities law, those in the public realm are heavily regulated, while those in the private realm are largely left alone. This public-private divide, which is a fundamental organizing principle of securities law, has eroded with the rise of nontraditional investors. While legal scholars have addressed the impact of some of these nontraditional investors individually, their collective impact on deal terms, deal timelines, due diligence, and board configuration has not been discussed in a holistic manner; neither has their impact on the investor landscape and securities law. This Article provides the first descriptive account of nontraditional investors throughout startups’ lifecycles and the normative implications of their participation in the venture capital ecosystem. Ultimately, nontraditional investors helped to facilitate the rise of unicorns which contributed to the “breakdown” of the public-private divide, with the attendant problems related to investor protection, corporate governance, valuation bubbles, and the like. Once thought of as outliers, nontraditional investors have influenced the venture capital market and the ways in which deals were conducted in significant ways. They drove capital investment trends and created an increasingly competitive deal environment in venture capital. Outsized funds became the norm, and the size and valuation of venture capital deals at each stage of a startup grew ever larger. In some cases, it led to less investor oversight and due diligence. Although one of the hallmarks of venture capital investors is their hands-on approach, that is not the case for all of the nontraditional investors. Board dynamics and economics and control—the two underlying principles of venture capital deals—shifted in favor of the founders as nontraditional investors proliferated and the economy remained strong. However, the recent economic downturn has led to a recalibration of nontraditional investors’ influence. In this environment, founders are no longer able to dictate the terms of venture capital financings, the investment pace has slowed, and while some nontraditional investors may retreat and reassess, their influence in the venture capital ecosystem will continue to reverberate in the years to come

Innovating Inclusion: The Impact of Women on Private Company Boards

Eight percent—that is the percentage of women who serve on the boards of directors of private high technology companies. Private companies, particularly high technology companies, have transformed citizens’ daily lives, while the unprecedented availability of private capital has allowed those companies to remain private longer. This rise, however, has also obscured some of the weaknesses of private companies, which are not subject to public disclosure and regulatory oversight: rampant sexual harassment, the lack of women leaders in technology companies, the relative absence of female venture capitalists, and the dearth of female board members, to name a few. Yet thus far, legal scholarship on gender diversity on corporate boards has focused almost exclusively on public companies, overlooking the stark lack of women in the vastly wealthy and influential sector of private capital. This Article documents the exclusion of women from the boards of nearly all the major private high technology companies currently influencing American business, and it explains why this male-only hegemony matters. It then offers a new paradigm, the innovation imperative, for creating a business culture in which people of all genders can make valued contributions. This Article analyzes two potential arenas for change: the legal and business realms. It concludes that a combination of legal and business reforms, such as adding inclusion riders to contracts and rethinking certain hiring and networking practices, would pave the way for progress in getting more women on boards

Woke Capital Revisited

Inclusive corporate leadership is now at the forefront of discussions related to corporate governance. Two corporate theories help to explain the rise in prominence of diversity, equity, and inclusion (“DEI”) efforts in corporate leadership. First, an expanded definition of corporate purpose which elevated the idea of the importance of stakeholders, contributed to the momentum from business and legal quarters for broader corporate inclusion. Second, the increasing publicness of corporations—the social expectation of how large, typically public corporations should act given their position of power—also led to corporations becoming more active in the DEI space. It is against this backdrop that companies began to embrace diversity measures in form and sometimes, substance. Put simply, for companies to attract and retain talent, customers, and investors, their leaders need to lead—or at least be perceived to lead—on corporate inclusivity, especially with respect to the most visible members. However, the implementation of DEI measures within corporate leadership has not been without its challenges. Some have characterized such measures as “woke capital.” Too often, such efforts are limited to press releases, speeches, and reports on diversity statistics. In other words, companies emphasize form over substance. This Article analyzes how the reconceiving of corporate purpose and societal pressures has impacted corporations’ implementation of DEI measures in the boardroom and throughout the corporation itself. In addition, this Article explores the question of whether a company can ground the fiduciary duties of officers and directors in its duties to society generally. As a complement to environmental, social, and governance and human capital management-related activities of companies, this Article also proposes ways to hold senior executives and boards accountable for diversity-related goals that are touted in public forums. It identifies legal and business mechanisms that could amplify corporate DEI commitments or spur more action

Employees as Regulators: The New Private Ordering in High Technology Companies

There is mounting public concern over the influence that high technology companies have in our society. In the past, these companies were lauded for their innovations, but now as one scandal after another has plagued them, from being a conduit in influencing elections (think Cambridge Analytica) to the development of weaponized artificial intelligence, to their own moment of reckoning with the #MeToo movement, these same companies are under scrutiny. Leaders in high technology companies created their own sets of norms through private ordering. Their work was largely unfettered by regulators, with the exception of the Securities and Exchange Commission’s oversight of public companies. Now, however, white-collar employees at high technology companies are speaking out in protest about their respective employers’ actions and changing private ordering as we know it. In essence, employees are holding companies accountable for the choices they make, whether it is what area to work (or not work) in or eliminating a practice that has systemic implications, such as mandatory arbitration provisions for sexual misconduct cases. This Article builds upon my prior work on the role of corporations and social movements, analyzing how employees in high technology companies have redefined the contours of private ordering and, in the process, have also reimagined what collective action looks like. Because these workers are in high demand and short supply, they are able to affect private ordering in a way that we have not seen before. As a result, they have the potential to be an important check on the high technology sector

Woke Capital: The Role of Corporations in Social Movements

Iconic companies such as Apple, BlackRock, Delta, Google (now Alphabet), Lyft, Salesforce, and Starbucks, have recently taken very public stances on various social issues. In the past, corporations were largely silent in the face of them. Now the opposite is true—corporations play an increasingly visible role in social movements and there are times when corporations have led the discussion, particularly in areas where they have a self-interest or public opinion supports it. The enormous influence corporations wield on both the economic and social fabric of our society due to the legal framework and norms under which they operate make them uniquely positioned to affect the outcome of social movements—for better or worse. The contribution of this Article is three-fold: it discusses how court cases and changing norms about the role of the corporation in society led to the rise of the modern business corporation, which in turn laid the groundwork for corporations’ involvement in social movements; provides an original descriptive account of the role of corporations in social movements using three case studies and the ways in which corporations have helped or hindered such movements; and tackles the underlying normative question about the appropriateness of the involvement of corporations in social movements in light of the legal framework in which it resides. This Article concludes that despite the perils, corporate law holds the promise of being a force for social change

Innovating Inclusion: The Impact of Women on Private Company Boards

Eight percent-that is the percentage of women who serve on the boards of directors of private high technology companies. Private companies, particularly high technology companies, have transformed citizens\u27 daily lives, while the unprecedented availability of private capital has allowed those companies to remain private longer. This rise, however, has also obscured some of the weaknesses of private companies, which are not subject to public disclosure and regulatory oversight: rampant sexual harassment, the lack of women leaders in technology companies, the relative absence of female venture capitalists, and the dearth of female board members, to name a few. Yet thus far, legal scholarship on gender diversity on corporate boards has focused almost exclusively on public companies, overlooking the stark lack of women in the vastly wealthy and influential sector of private capital. This Article documents the exclusion of women from the boards of nearly all the major private high technology companies currently influencing American business, and it explains why this male-only hegemony matters. It then offers a new paradigm, the innovation imperative, for creating a business culture in which people of all genders can make valued contributions. This Article analyzes two potential arenas for change: the legal and business realms. It concludes that a combination of legal and business reforms, such as adding inclusion riders to contracts and rethinking certain hiring and networking practices, would pave the way for progress in getting more women on boards