Securities Issuance Business Resource Materials
Entrepreneurship Law Editorial Team
Stuart R. Cohn, SECURITIES COUNSELING FOR NEW AND DEVELOPING COMPANIES (1993).
Nicola Gennaioli, Andrei Shleifer & Robert Ward Vishny, Financial Innovation and Financial Fragility (2010).
Abstract (from National Bureau of Economic Research website):
This text presents a standard model of financial innovation, in which intermediaries engineer securities with cash flows that investors seek, but modify two assumptions. First, investors (and possibly intermediaries) neglect certain unlikely risks. Second, investors demand securities with safe cash flows. Financial intermediaries cater to these preferences and beliefs by engineering securities perceived to be safe but exposed to neglected risks. Because the risks are neglected, security issuance is excessive. As investors eventually recognize these risks, they fly back to safety of traditional securities and markets become fragile, even without leverage, precisely because the volume of new claims is excessive.
Dan Steiner, Kickstarter Handbook: Real- Life Success Stores of Artists,
Inventors, and Entrepreneurs (2012).
Abstract (adapted from publisher): So you want to produce a short film. Or design a new
line of jewelry. Or manufacture a revolutionary solar-powered garden sprinkler.
There’s just one catch: You need $100,000 to bankroll your dream, and your
checking account has barely enough to cover the rent. Enter Kickstarter.com—the
phenomenal “crowdfunding” website launched in 2009 that brings venture capital
to the masses. At Kickstarter, it’s not uncommon for entrepreneurs to raise
$50,000, $100,000, $250,000, or more. All you need is a great idea—and The Kickstarter Handbook. Business
journalist Don Steinberg has interviewed dozens of artists and inventors who
launched their passion projects online. Through their voices, you’ll explore
all the strategies of a successful Kickstarter campaign. You’ll learn the
elements of a compelling Kickstarter video, innovative ways to market your
projects, tips for getting donors onboard, and the secrets of irresistible
Kickstarter “rewards.” You’ll also discover what to do in a best-case
scenario—when your project goes viral and the cash starts flowing in. On
Kickstarter, it happens to a few lucky visionaries every week. Here’s how to be
one of them.
Tom Alberg et al., 2013 State of
Entrepreneurship Address: 'Financing Entrepreneurial Growth,' (Ewing Marion Kauffman
Foundation, Research Paper, 2013), available at http://ssrn.com/abstract=2212743.
Abstract (by authors): Despite
recent innovations in entrepreneurial finance, particularly at the early stage
of business creation, many new and young companies continue to face hurdles to
acquire capital. The Kauffman Foundation addressed current challenges and
opportunities in financing entrepreneurial growth, a key driver of job creation
and economic expansion, at its fourth annual State of Entrepreneurship Address
on February 5, 2013. The event featured remarks from Small Business
Administrator Karen Mills, U.S. Senator Jerry Moran and Kauffman President and
CEO Tom McDonnell. In his address at the National Press Club in Washington,
McDonnell offered policy recommendations to increase financing of
entrepreneurial ventures that are featured in a paper on the same topic. Key
recommendations include: Crowdfunding: the Securities and Exchange Commission
should approve rules under the JOBS Act that encourage experimentation without
excessive regulation; IPOs: greater use of auctions, such as the Dutch auction
used by Google, rather than the more common practice of setting a specific
price for new stock offerings; Bank Debt: introduce more flexibility into the
regulatory process – such as providing the Federal Reserve, Comptroller of the
Currency and Federal Deposit Insurance Corporation the authority to make
judgment calls at the local level; Regulation: allow shareholders of companies
the right to vote whether Sarbanes-Oxley accounting rules are necessary;
Venture Capital: create longer-term venture funds that include significant
"skin-in-the-game" investment from General Partners, so their
interests are aligned with Limited Partner investors over a reasonable time
Amitrajeet A. Batabyal, Project Financing, Entrepreneurial Activity, and Investment in the Presence of Asymmetric Information (RIT Economics Department, Working Paper No. 11-07, 2011), available at http://ssrn.com/abstract=1953467.
(adapted from author):
The authors analyze a two-period signaling model in which a representative entrepreneur in a regional economy has a project that generates a random cash flow and that requires investment that the entrepreneur raises from a competitive market. The project’s type is known to the entrepreneur but not to the investors. Further, the entrepreneur is restricted to issuing debt only or equity only. The authors first show that there is no separating perfect Bayesian equilibrium (PBE) contract involving the issuance of equity only, that there exists a pooling PBE contract involving the issuance of equity only, and that a debt contract is preferred to an equity contract by the entrepreneur. Next, they suppose that the entrepreneur incurs a non-pecuniary cost of financial distress F>0 whenever he is unable to make a repayment at time t=1. The authors provide conditions on F under which a pooling PBE contract with debt exists and a separating PBE contract with debt and equity exists. Finally, the authos examine whether a high type entrepreneur will prefer a setting with a cost of financial distress (F>0) or a setting in which there is no such cost (F=0).
William S. Blatt, Minority Discounts, Fair Market Value, and the Culture of Estate Taxation, 52 Tax L. Rev. 225 (1997).
Cécile Carpentier & Jean-Marc Suret, Entrepreneurial Equity Financing and Securities Regulation: An Empirical Analysis, 30 Int’l Small Bus. J. 41 (2012).
(adapted from journal):
To protect investors, securities regulation generally restrains entrepreneurial ventures from entering the stock market. Scholars and regulators contend that strong rules and requirements for listing are essential to prevent the market from failing. However, these constraints can also unduly impede the growth of new ventures. The authors use the Canadian case to examine the effects of the relaxation of the regulatory constraints. Unlike in other countries, firms in Canada can list at a very early stage, without revenues, with a minimal size and even without writing a prospectus using the reverse merger technique. This provides a unique opportunity to examine entrepreneurial ventures listed on a public market. The quality of firms, their post-listing operating performance and strategy, and their fate largely support the opinion that strong listing requirements are essential to prevent the emergence of a lemon market. Investors involved in this market obtain very poor returns. This indicates that they are neither able to set correct prices in this market nor deal with the high level of information asymmetry therein. The reluctance of most regulators to relax the requirements for small business finance can, therefore, be justified.
Giancarlo Giudici et
al., Crowdfunding: The New Frontier for Financing Entrepreneurship?
(2012), available at http://ssrn.com/abstract=2157429.
Abstract (adapted from authors):This
paper aims to take stock of the extant knowledge on an emerging practice in the
entrepreneurial finance landscape: crowdfunding,
which seems to play an increasingly important role for the seed financing of
entrepreneurial projects. We provide a systematization of what it is known on
this theme, which can be useful to scholars, practitioners, and policymakers
interested in the phenomenon from different angles. Adopting a phenomenon-based
approach, which is deemed to be appropriate when investigating new and rather
unexplored phenomena, the authors first review the emergent literature on
the theme to single out the aspects that so far have attracted the bulk of
scholarly interest. Then, the authors compare the crowdfunding with
other forms of entrepreneurial finance. Finally, there is a first
survey on Italian crowdfunding platforms.
Jin-Hyuk Kim &
Liad Wagman, Early-Stage Financing and Information Gathering: An Analysis of
Startup Accelerators (Midwest Finance Association Annual Meeting Paper,
2013), available at http://ssrn.com/abstract=2142262.
Abstract (adapted from authors): This
paper studies some of the dynamics that are introduced by a startup
accelerator program in a competitive market for venture financing. This
includes inefficiencies that may arise when the accelerator sets an equity fee,
chooses a class size, and shares information with investors, as well as
efficiencies in terms of granting entrepreneurs better access to
investors. The authors find that the accelerator chooses a class size
that is too small relative to the social optimum, but this inefficiency is
diminished when the accelerator hires entrepreneurs-in-residence or provides
improved access to investors. When the accelerator can strategically decide
what type of venture information to release to investors, the
study shows that in order to facilitate the financing of additional
program participants, it may choose to transmit only positive information.
Finally, the authors show that when entrepreneurs perceive obtaining
external funding as their main objective, an inefficient accelerator may
operate in equilibrium, reducing social welfare.
Ethan R. Mollik, Swept
Away by the Crowd? Crowdfunding, Venture Capital, and the Selection of Entrepreneurs
(2013), available at http://ssrn.com/abstract=2239204.
Abstract (by author): Venture
Capitalists (VCs) are experts in assessing the quality of entrepreneurial
ventures. A long tradition of research has examined the signals of quality that
VCs look for in new ventures, and the biases that result from the VC selection
process. Recently, an alternative form of new venture funding has arisen in the
form of crowdfunding, which relies on the judgment of millions of amateurs
about which entrepreneurial projects are worth funding. Little is known
about the degree to which amateurs respond to the same signals of quality as
VCs, and whether they are subject to the same biases. To address this gap, the
author examined 2,101 crowdfunded projects that match characteristics of more
traditional VC-backed seed ventures. Despite the radical differences in
selection environments, the author found that entrepreneurial quality is
assessed in similar ways by both VCs and crowdfunders, but that crowdfunding
alleviates some of geographic and gender biases associated with the way that
VCs look for signals of quality.
K. Thomas Chandy & Nagaraj Sivasubramaniam, Post-IPO Actions and Firm Survival: More than Signaling? (Santa Clara University Leavey Sch. Of Bus. Research Paper No. 11-01, 2011), available at http://ssrn.com/abstract=1743706.
Abstract (adapted from author):
Entrepreneurial firms, at their birth, have a high probability of failure due to the “liability of newness.” Even firms that surmount the initial challenges and get to the stage of issuing an initial public offering (IPO) still face a significant hazard rate. This paper examines whether, in the post-IPO stage, strategic choice matters. It also examines whether management actions following an IPO enhance the firm’s survival and, second, if they do, which actions really make a difference. The authors analyzed a sample of 104 internet-related firms that issued IPOs between 1995 and 1999, and find that management action in three areas — market expansion, entry into alliances, and expansion or reconfiguration of the top management team and/or board of directors — significantly enhance firm survival.
James C. Spindler, IPO Liability and Entrepreneurial Response, 155 U. Pa. L. Rev. 1187 (2006).
Abstract (from author):
This Article explores how legal liability in the IPO context can affect an entrepreneur's decision of whether and how to take a firm public. Liability under the Securities Act of 1933 effectively embeds a put option in an IPO security, forcing the entrepreneur to insure shareholders against poor firm performance, inflating the price of the security, and exposing the entrepreneur to risk. This may cause IPO firms to appear to underperform relative to non-IPO firms as the option value decays, and may lead the entrepreneur to undertake strategic (but destructive) responses to minimize the put value and his exposure to risk. Because of the value-destroying characteristics of these responses - which include initial underpricing, entrenchment, lower net present value projects, asset partitioning, and reduced disclosure - the present state of affairs is inefficient compared to a system where the entrepreneur can simply allocate the risk to shareholders.
Qin Yang et al., An Empirical Study of the Impact of CEO Characteristics on New Firms' Time to IPO, 49 J. Small Bus. Mgmt. 163 (2011).
Abstract (from author):
An initial public offering (IPO) is one of the most critical events in the life of a firm. As the IPO market continues to attract attention from both entrepreneurs and investors, research examining the relationship between the firm's characteristics and its IPO performance is growing. In this paper, we use the upper echelon perspective to empirically examine the relationship between the firm's chief executive officer (CEO) and the firm's time to IPO, a relationship that has so far received little attention. Using data obtained from 237 IPOs in the U.S. software industry, we found that the CEO's prior executive experience, network, and age are significantly related to the new firms time to IPO. This study extends the understanding of the important role of the CEO in the IPO and provides investors greater insight into those variables that influence the speed with which firms go public.
Securities and Exchange Commission, Internet Fraud: How to Avoid Internet Investment Scams
Telis Demos & Douglas MacMillan, Startups Boosting the Risk, Wall St. J., Dec. 26, 2013, at C1.
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