Moonshots

84 Pages Posted: 6 Apr 2022 Last revised: 24 Feb 2023

See all articles by Matthew Wansley

Matthew Wansley

Yeshiva University - Benjamin N. Cardozo School of Law

Date Written: April 3, 2022

Abstract

In the last half-century, technological progress has stagnated. Rapid advances in information technology disguise the slow pace of productivity growth in other fields. Reigniting technological progress may require firms to invest in moonshots—long-term projects to commercialize innovations. Yet all but a few giant tech firms shy away from moonshots, even when the expected returns would justify the investment. The root of the problem is corporate structure. The process of developing a novel technology does not generate the kind of interim feedback that shareholders need to monitor managers and managers need to motivate employees. Managers who anticipate these agency problems invest in incremental innovations instead.

In the last few years, a new structure designed to commercialize long-term innovations has emerged—the venture carveout. A venture carveout is a private company with one or two public company parents, outside private investors, and employee ownership. The parents provide intellectual property and a long-term strategic commitment. The private investors supply patient capital that insulates the project from short-term shareholder pressure. The employees’ equity motivates them to bring a product to market. The first venture carveouts are attempting to commercialize autonomous vehicles. If they succeed, they will validate a new model for innovation. This Article argues that venture carveouts could enable more companies to invest in moonshots, compete with the tech giants that dominate our economy, and accelerate technological progress.

Keywords: venture capital, law and technology

JEL Classification: K22

Suggested Citation

Wansley, Matthew, Moonshots (April 3, 2022). 2022 Columbia Business Law Review 859 (2023), Cardozo Legal Studies Research Paper No. 679, Available at SSRN: https://ssrn.com/abstract=4074038 or http://dx.doi.org/10.2139/ssrn.4074038

Matthew Wansley (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

55 Fifth Ave.
New York, NY 10003
United States

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