University of Pennsylvania Law Review Online, Vol. 166, 2017 Forthcoming
18 Pages Posted: 4 Oct 2017
Date Written: October 3, 2017
The recent trend of large-scale start-up companies delaying an IPO creates a new kind of corporate governance problem. The prevalence of “unicorns” – privately held companies with market valuations of $1 billion or more – means the disciplinary mechanisms on which investors traditionally relied no longer function to prevent misconduct or mismanagement by unicorn founders. High profile frauds by unicorns like Zenefits and Theranos, and the recent travails of Uber highlight the need to rethink unicorn governance structure. These burgeoning controversies call for reconsideration of legal reforms that allow unicorns to remain for protracted periods in an ill-defined limbo between private and public company status. This uncharted status allows unicorn founders to maneuver away from oversight by venture capital investors who traditionally constrained their conduct, while indefinitely delaying the scrutiny of gatekeepers and regulators that accompanies formal entry onto the public securities markets.
JEL Classification: M13, G30, K22
Suggested Citation: Suggested Citation
Jones, Renee M., The Unicorn Governance Trap (October 3, 2017). University of Pennsylvania Law Review Online, Vol. 166, 2017 Forthcoming; Boston College Law School Legal Studies Research Paper No. 463. Available at SSRN: https://ssrn.com/abstract=3047189