Venture Law in 2021: Key Trends & Updates

The Expanding Landscape of Venture Capital and Legal Challenges

The world of venture capital is experiencing unprecedented growth, characterized by increasing funding rounds, larger investment amounts, and elevated company valuations. This expansion has resulted in a significant rise in the number of unicorn companies – privately held startups valued at over $1 billion – and has simultaneously presented regulators and venture law scholars with a complex array of challenges.

A primary concern is the limited access retail investors have to this dynamic sector of the global economy, as many companies remain private. However, the issues extend beyond accessibility. Growing scrutiny is being directed towards areas such as disclosure practices, board-level transparency, diversity within leadership and the workforce, and the protection of whistleblowers reporting potential fraud.

To delve into the current state of venture law, TechCrunch convened a panel of four law professors specializing in this field and securities law. Their insights address emerging trends and propose potential regulatory changes for the future.

Key Arguments from Legal Scholars

Our panel presented a range of perspectives on how to navigate the evolving landscape of venture capital:

• Yifat Aran, Assistant Law Professor at Haifa University, proposes “A new coalition for ‘Open Cap Table’ presents an opportunity for equity transparency.” She advocates for standardized cap table data formats to enhance portability and transparency for all shareholders, particularly employees who often lack full insight into a startup’s capital structure.
• Matthew Wansley, Assistant Law Professor at Cardozo School of Law, argues in “The next Theranos should be shortable” that allowing short selling of private unicorn company shares would introduce valuable scrutiny. He suggests that short sellers could provide a crucial check on potential fraud, as venture investors may lack the incentive to actively seek out issues post-investment.
• Jennifer Fan, Assistant Law Professor at the University of Washington, contends in “Diversifying startups and VC power corridors” that diversity initiatives should extend beyond board mandates. She emphasizes the need for comprehensive incentives promoting diversity across all relationships – with employees, venture capitalists, and the limited partners (LPs) of those VCs – to broaden access within the tech industry.
• Alexander I. Platt, Associate Law Professor at the University of Kansas, argues in “The legal world needs to shed its ‘unicorniphobia’” that caution is warranted when considering changes to securities regulations. He points out the substantial value created by startups and suggests that increased rules and disclosures may hinder innovation, despite potentially mitigating risks.

The academic study of venture law has gained momentum with the emergence of a reform-focused movement within Washington D.C. TechCrunch remains committed to reporting on these developments and providing diverse viewpoints on the critical legal and regulatory issues confronting the technology and startup ecosystem.