Monday, April 18, 2022
On Friday, I have the honor and pleasure of presenting a continuing legal education session for the Tennessee Bar Association with Dean Matt Lyon from the LMU Duncan School of Law. Our topic? Partner freeze-outs--situations in which a co-venturer in a business recognized as a partnership is excluded from the business by their fellow co-venturers. This exclusion often occurs through or involves the formation of a limited liability entity, typically a corporation or limited liability company, to conduct the operations of the business going forward. That new business entity does not include one of the initial co-venturers. We have titled our session "No Partner Left Behind:Organizing a Limited Liability Entity for a Pre-existing Business Venture."
I truly enjoy the judicial opinions in this area. You probably know some of them. Holmes v. Lerner may be one of the better known cases in this space. But there are others. Some of the claims in these cases, like the claims in Holmes v. Lerner, stem from co-venturers involved in a de facto partnership--a venture recognized under statutory law as a partnership for which there is no express written acknowledgment of partnership. Entrepreneurs beware!
The partnership freeze-out genre of judicial opinions is related to the old chestnut Meinhard v. Salmon, a partnership opportunity case relating to the exclusion of a "coadventurer" from a subsequent leasehold for the property that had been the subject of the co-venturers original joint venture. These judicial opinions also can be connected to the more recent, interesting, and aberrant Energy Transfer Partners, L.P. v. Enter. Prod. Partners, L.P., in which the court finds that “[a]n agreement not to be partners unless certain conditions are met will ordinarily be conclusive on the issue of partnership formation as between the parties,” foreclosing an argument made by one of the parties to the agreement that a partnership was nonetheless formed by conduct under the statutory definition.
It turns out that Matt and I are not the only folks intrigued by these cases. Twenty-three years ago, Frank Gevurtz wrote a nifty article on partner freeze-outs: Franklin A. Gevurtz, Preventing Partnership Freeze-Outs, 40 MERCER L. REV. 535 (1989). Ultimately, Frank focuses in on planning and drafting ideas as a means of avoiding litigation in this area. Like Frank, Matt and I offer lawyering points emanating from what we learned in reviewing judicial opinions of this kind. Of course, these law practice points require that co-venturers be aware of the creation of a partnership in the first place. These cases certainly make for animated discussions in entrepreneurship and other small business settings and are especially great fodder for discussion in a business associations law course.
Tuesday, November 23, 2021
Penn State Law Minority Business Development: Special Open Session (November 30, 2021, 4:00 PM - 6:45 PM EST)
This just in from friend-of-the-BLPB Sam Thompson at Penn State Law. Sam hopes we will bring this program to the attention of those "who might be interested in learning more about this very important topic," including law school administrators, faculty, and students. I know I plan to make others aware.
Dear Colleagues: This semester I am teaching a course dealing with issues in Minority Business Development, a subject I took as a student literally 50 years ago in my third year at the University of Pennsylvania Law School. Because of the importance of this topic, Penn State Law has permitted me to make the course open to anyone who is interested in this very important topic, and recordings of all of the sessions of the course are available on the Penn State Law website here.
The course is divided into the following three segments:
Part I, Introduction and in-Depth Analysis of the Minority-White Gap in Business Ownership,
Part II, The Lawyer’s Essential Tools in Representing a Minority-Owned Small Business, and
Part III, The Big Ideas for Addressing the Minority-White Gap in Business Ownership
Part I was covered over five sessions and ended with a discussion with Professor Berdejo of the Loyola Law School in LA about his recently published article in the University of Wisconsin Law Review entitled: Financing Minority Entrepreneurship. Part II of the course focused on the Essential Tools that any lawyer needs in advising owners of a business. Each of these sessions was led by an outstanding practitioner, including a lawyer from the following firms: McGuire Woods; Richards, Layton & Finger; Nelson Mullins; Schiff Hardin; Wachtell Lipton; and Starfield & Smith. For this part, we principally used the Maynard et. al. Business Planning casebook.
This brings me to Part III, The Big Ideas for Addressing the Gap, which will be held in one session on Tuesday, November 30, 2021. This special session will be live over the Internet from 4 PM to 6:45 PM Eastern Time. A recording of this session will also be available on the website for the course. This Special Session is entitled Perspectives on Minority Business Development, and in this session, experts from across the country will engage in a live discussion of Minority Business Development issues. The event, which is divided into three sessions, includes perspectives of lawyers, an economist, a business school dean, tax policy experts, entrepreneurs, and Penn State Law students who are enrolled in the course. Reactions to the presentations in the three sessions will be provided by Dana Peterson, Chief Economist at The Conference Board. While Ms. Peterson was a banker at Citigroup, she was the co-author of a 2020 report by Citigroup entitled: Closing the Racial Inequality Gaps. A flyer for the program is attached, and the event page for the program can be reached here.
. . .
Tuesday, July 6, 2021
In 2008, my university (Belmont University) was supposedly the first to offer a social entrepreneurship major. Since then, not only have the schools offering majors in social entrepreneurships grown, but many schools have created centers, institutes, or programs dedicated to the area. Below I try to gather these social enterprise centers in universities. The vast majority are in business schools, some are collaborative across campus, and a few are located in other schools such as law, social work, or design. A few have a specifically religious take on business and social good. Happy to update this list with any centers I missed.
Lewis Institute at Babson https://www.babson.edu/academics/centers-and-institutes/the-lewis-institute/about/#
Christian Collective for Social Innovation at Baylor https://www.baylor.edu/externalaffairs/compassion/index.php?id=976437
Center for Social Innovation at Boston College https://www.bc.edu/content/bc-web/schools/ssw/sites/center-for-social-innovation/about.html
Watt Family Innovation Center at Clemson https://www.clemson.edu/centers-institutes/watt/
Center for the Integration of Faith and Work at Dayton https://udayton.edu/business/experiential_learning/centers/cifw/index.php
CASE i3 at Duke https://sites.duke.edu/casei3/
Social Innovation Collaboratory at Fordham https://www.fordham.edu/info/23746/social_innovation_collaboratory
Social Enterprise & Nonprofit Clinic at Georgetown https://www.law.georgetown.edu/experiential-learning/clinics/social-enterprise-and-nonprofit-clinic/
and Beeck Center for Social Impact and Innovation at Georgetown https://beeckcenter.georgetown.edu
Global Social Entrepreneurship Institute at Indiana https://kelley.iu.edu/faculty-research/centers-institutes/international-business/programs-initiatives/global-social-entrepreneurship-institute.html
Business + Impact at Michigan https://businessimpact.umich.edu
Social Enterprise Institute at Northeastern https://www.northeastern.edu/sei/
Center for Ethics and Religious Values in Business at Notre Dame https://cerv-mendoza.nd.edu
Skoll Centre for Social Entrepreneurship at Oxford https://www.sbs.ox.ac.uk/research/centres-and-initiatives/skoll-centre-social-entrepreneurship
Wharton Social Impact Iniviative at Penn https://socialimpact.wharton.upenn.edu/
and Center for Social Impact Strategy at Penn https://csis.upenn.edu
Faith and Work Initiative at Princeton https://faithandwork.princeton.edu/about-us
Center for Faithful Business at Seattle Pacific https://cfb.spu.edu
Center for Social Innovation at Stanford https://www.gsb.stanford.edu/faculty-research/centers-initiatives/csi
Social Innovation Initiative at Texas https://www.mccombs.utexas.edu/Centers/Social-Innovation-Initiative
Taylor Center for Social Innovation and Design Thinking at Tulane https://taylor.tulane.edu/about/
Social Innovation Cube at UNC https://campusy.unc.edu/cube/
Social Innovation at the Wond’ry at Vanderbilt https://www.vanderbilt.edu/thewondry/programs/social-innovation/
Program for Leadership and Character at Wake Forest: https://leadershipandcharacter.wfu.edu/#
Program on Social Enterprise at Yale https://som.yale.edu/faculty-research/our-centers/program-social-enterprise/programs
Saturday, April 24, 2021
My friend and colleague Prof. Victoria Haneman has shared her paper, Menstrual Capitalism, Period Poverty, and the Role of the B Corporation. Here is the abstract:
A menstruation industrial complex has arisen to profit from the monthly clean-up of uterine waste, and it is interesting to consider the way in which period poverty and menstrual capitalism are opposite sides of the same coin. Given that the average woman will dispose of 200 to 300 pounds of “pads, plugs and applicators” in her lifetime and menstruate for an average of thirty-eight years, this is a marketplace with substantial profit to be reaped even from the marginalized poor. As consciousness of issues such as period poverty and structural gender inequality increases, menstrual marketing has evolved and gradually started to “go woke” through messaging that may or may not be genuine. Companies are profit-seeking and the woke-washing of advertising, or messaging designed to appeal to progressively-oriented sentimentality, is a legitimate concern. Authenticity matters to those consumers who would like to distinguish genuine brand activism from appropriating marketing, but few objective approaches are available to assess authentic commitment.
This Essay considers the profit to be made in virtue signaling solely for the purpose of attracting customers and driving sales: pro-female, woke menstruation messaging that may merely be an exploitative and empty co-optation. Feminists should be expecting more of menstrual capitalists, including a commitment that firms operating within this space address the diapositive issue of period poverty, one of the most easily solved but rarely discussed public health crisis of our time, and meaningfully assist those unable to meet basic hygiene needs who may never be direct consumers. This Essay serves as a thought piece to explore the idea of B Corporation certification as an implicit sorting device to distinguish hollow virtue signaling from those menstrual capitalists committed to socially responsible pro-womxn business practices.
It is well-known that I am not fond of benefit corporation statutes, but given that they are a thing (along with B Corp certification), we have to deal with them. I still feel strongly that they benefit entity type, as it currently exists, is not helpful and potentially counterproductive. And I really don't like that B Corp certification has moved to include mandating entity type. But that's just facts, for now, anyway.
My opposition to benefit entities, though, is not anti-signaling by an entity of their values, and there's little doubt in my mind that a benefit entity (if it must exist) certainly makes sense for nonprofits (thought I still think the nonprofit thing told us all we needed to know). We're stuck with benefit entities, so Professor Haneman is probably correct that choosing the entity type could have value in marketing and signaling to consumers shared values. I still think companies should signal through acts, not entity choice, and that all entity types should have the latitude to do such signaling. But in the world we live in, this just may be how it is. Regardless, I recommend taking a look -- even when I disagree, Professor Haneman is always thoughtful, smart, and entertaining.
Tuesday, January 12, 2021
Given anti-democratic events at the nation’s Capitol which were made possible by continued structural injustice in the U.S. – I feel obligated as a lawyer and professor to emphasize our responsibilities to address the interlocking systems of subordination that impact every area of the law – with entrepreneurship being no exception. These systems divide us into “haves” and “have nots” based on race, gender, class, and even geography.
We have a moral obligation as lawyers and professors to address these structural barriers in the classroom. Entrepreneurship is often touted as a means for greater economic participation and a vehicle for innovation. Yet many entrepreneurs and small businesses are hobbled by barriers rooted in structural injustice. These obstacles prevent them from raising necessary capital, accessing legal resources, obtaining other technical assistance, and numerous impediments related to operations such as insurance and talent retention. A full accounting of existing barriers, though important, is insufficient. We must examine the legal roots of modern structural barriers to entrepreneurship - interlocking systems of subordination based on race, class, and gender. Sadly, U.S. laws and policies have actively devalued certain populations and entire communities, elevating certain communities while relegating others to the economic margins. For example, redlining influenced decades of public and private investment, decimating both the inner-city as well as rural areas.
Law professors must equip our students to be thoughtful, diligent, competent, compassionate, and ethical lawyers. As part of this education, students must confront, and unpack legal regimes and reckon with their practical impacts. At a minimum, our students will engage with state and local policy as private attorneys, regulators, and even elected officials. Grounding them in a thorough understanding of the impacts of structural barriers and empowering them to create change by demanding legal reforms is a task we must embrace.
This blog post expands on my presentation at the AALS 2021 Annual Meeting, where I outlined methods for introducing this vital and complex topic into the business law classroom. Below, I detail my learning goals, lesson plans, and provide some additional materials that may prove helpful for other business law professors. This class was first designed and implemented during my time as an Associate Professor at West Virginia University’s College of Law. I mention this to emphasize that the demographics of a law school student body or fellow faculty should not deter academics from engaging in these topics. I have also modified this class successfully for my current students at American University’s Washington College of Law. I can attest that the class has resulted in important and rich dialogue in both law school classrooms. (Please click below for more.)
Friday, July 24, 2020
Yesterday, I had the pleasure of moderating a panel of Black entrepreneurs sponsored by the Miami Finance Forum, a group of finance, investment management, banking, capital markets, private equity, venture capital, legal, accounting and related professionals. When every company and law firm was posting about Black Lives Matter and donating to various causes, my colleague Richard Montes de Oca, an MFF board member, decided that he wanted to do more than post a generic message. He and the MFF board decided to launch a series of webinars on Black entrepreneurship. The first panel featured Jamarlin Martin, who runs a digital media company and has a podcast; Brian Brackeen, GP of Lightship Capital and founder of Kairos, a facial recognition tech company; and Raoul Thomas, CEO of CGI Merchant Group, a real estate private equity group.
These panelists aren't the typical Black entrepreneurs. Here are some sobering statistics:
- Black-owned business get their initial financing through 44% cash; 15% family and friends; 9% line of credit; 7% unsecured loans; and 3% SBA loans;
- Between February and April 2020, 41% of Black-owned businesses, 33% of Latinx businesses, and 26% of Asian-owned businesses closed while 17% of White-owned business closed;
- As of 2019, the overwhelming majority of businesses in majority Black and Hispanic neighborhoods did not have enough cash on hand to pay for two weeks worth of bills;
- The Center for Responsible Lending noted that in April, 95% of Black-owned businesses were tiny companies with slim change of achieving loans in the initial rounds of the Paycheck Protection Program;
- Only 12% of Black and Hispanic business owners polled between April 30-May 12 had received the funding they requested from the stimulus program. In contrast half of all small business had received PPP funds in the same poll.
Because we only had an hour for the panel, we didn't cover as much as I would have liked on those statistics. Here's what we did discuss:
- the failure of boards of directors and companies to do meaningful work around diversity and inclusion- note next week, I will post about the spate of shareholder derivative actions filed against companies for false statements about diversity commitments;
- the perceptions of tokenism and "shallow, ambiguous" diversity initiatives;
- how to get business allies of all backgrounds;
- the need for more than trickle down initiatives where the people at the bottom of the corporation/society don't reap benefits;
- the fact that investing in Black venture capitalists does not mean that those Black VCs will invest in Black entrepreneurs and the need for more transparency and accountability;
- whether the Black middle class still exists and the responsibility of wealthier Black professionals to provide mentorship and resources;
- why it's easier for entrepreneurs to get investments for products vs. services, and a hack to convince VCs to invest in the service;
- whether a great team can make up for a so-so product when a VC hears a pitch;
- why there are so many obstacles to being a Black LGBTQ entrepreneur and how to turn it to an advantage when pitching; and
- whether reparations will actually help Black entrepreneurs and communities.
If you want to hear the answers to these questions, click here for access to the webinar. Stay safe and wear your masks!
July 24, 2020 in Corporations, CSR, Current Affairs, Entrepreneurship, Family Business, Management, Marcia Narine Weldon, Private Equity, Service, Shareholders, Technology, Venture Capital | Permalink | Comments (0)
Monday, July 13, 2020
U.S. Securities Crowdfunding: A Way to Economic Inclusion for Low-Income Entrepreneurs in the Wake of COVID-19?
Earlier today, I submitted a book chapter with the same title as this blog post. The chapter, written for an international management resource on Digital Entrepreneurship and the Sharing Economy, represents part of a project on crowdfunding and poverty that I have been researching and thinking through for a bit over two years now. My chapter abstract follows:
The COVID-19 pandemic has exacerbated and created economic hardship all over the world. The United States is no exception. Among other things, the economic effects of the COVID-19 crisis deepen pre-existing concerns about financing U.S. businesses formed and promoted by entrepreneurs of modest means.
In May 2016, a U.S. federal registration exemption for crowdfunded securities offerings came into existence (under the CROWDFUND Act) as a means of helping start-ups and small businesses obtain funding. In theory, this regime was an attempt to fill gaps in U.S. securities law that handicapped entrepreneurs and their promoters from obtaining equity, debt, and other financing through the sale of financial investment instruments over the Internet. The use of the Internet for business finance is particularly important to U.S. entrepreneurs who may not have access to funding because of their own limited financial and economic positions.
As the pandemic continues and the fifth year of effectiveness of the CROWDFUND Act progresses, observations can be made about the role securities crowdfunding has played and may play in sustaining and improving prospects for those limited means entrepreneurs. A preliminary examination indicates that, under current legal rules, securities crowdfunding is a promising, yet less-than-optimal, financing vehicle for these entrepreneurs. Nevertheless, there are ways in which U.S. securities crowdfunding may be used or modified to play a more positive role in promoting economic inclusion through capital raising for the innovative ventures of financially disadvantaged entrepreneurs and promoters.
I value the opportunity to contribute to this book with scholars from a number of research disciplines and countries. I have been looking for ways to concretize some of my ideas from this project in a series of shorter publications, and this project seems like a good fit. Nevertheless, I admit that I have been finding it challenging to segment out and organize my ideas about how securities crowdfunding may better serve entrepreneurs and investors, especially in the current economic downturn. As always, your ideas are welcomed.
Monday, June 1, 2020
Call for Papers
AALS Section on Agency, Partnership, LLCs & Unincorporated Associations
Entrepreneurship and the Entity
January 5-9, 2021, AALS Annual Meeting
The AALS Section on Agency, Partnership, LLCs & Unincorporated Associations will sponsor a panel on “Entrepreneurship and the Entity” at the 2021 AALS Annual Meeting in San Francisco, California. This panel will showcase scholarship on subjects relating to business law and entrepreneurship, including entity choice throughout a company’s evolution, financing alternatives, and how legal rules promote and discourage different kinds of entrepreneurship. Scholars are encouraged to interpret the subject of the Call for Papers broadly and creatively.
SUBMISSION PROCEDURE: Scholars should send a summary of a work or a work-in-progress of no more than 600 words to Professor Sarah C. Haan at email@example.com on or before Friday, August 21, 2020. The summary should be a pdf or Word document that has been stripped of information identifying the author; only the cover email should connect the author to the submission. The subject line of the email should read: “Submission—[author name & title].” Papers will be selected through an anonymous review by the Section’s Executive Committee.
SPECIAL NOTE: Interested parties are encouraged to submit even if they are not certain at this time that they will attend the AALS Annual Meeting in person.
ELIGIBILITY: Scholars at AALS member law schools are eligible to submit. Pursuant to AALS rules, faculty at fee-paid non-member law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit. Please note that all program presenters are responsible for paying their own annual meeting registration fees and, for those attending the AALS Annual Meeting in person, travel expenses.
Any inquiries about the Call for Papers should be submitted to: Professor Sarah C. Haan at firstname.lastname@example.org.
Monday, March 30, 2020
COVID-19's effects on financings and M&A, as well as contracts more generally (as covered here, here, and here among many other places), the rapid adoption of the Coronavirus Act, Relief, and Economic Security Act, a/k/a the “CARES Act” (key terms summarized briefly here and elsewhere), and the President's invocation of the Defense Production Act have me feeling like I am drinking business law water out of a fire hose this past week. Anyone else feeling that way? Whew!
I am still sorting through it all. I am sure that I will have more to say on some of this as time passes. However, earlier today, in the process of reading online resources and watching and listening to others talk about the many legal aspects of the current pandemic, I came across this YouTube video, done by one of my former students, a local attorney who works with entrepreneurs, start-ups, and small businesses.
I have not fact-checked this video. And he jumps in to correct himself. But what I like about it is that it represents unvarnished, even humorous, boots-on-the-ground legal public service. He does not want businesses in the local community to miss out or waste time/money shooting in the dark--or in the wrong direction.
Sometimes, our students do great things after they leave the hallowed halls of law school. Many times, those good deeds go unrecognized. Haseeb has always been passionate. It makes me so happy to see him using his passion to help the local business community. I want to offer a "shout out" to him here. (And his dog, Simon, is the cutest! ♥)
Monday, March 2, 2020
I recently had occasion to offer background to, and be interviewed by, a local television reporter about a publicly traded firm that owns several health care facilities in East Tennessee and has been financed significantly through loans from and corporate payments made by a member of its board of directors. The resulting article and news clip can be found here. Since the story was published, a Form 8-K was filed reporting that the director has resigned from the board and the firm is negotiating with him to cancel its indebtedness in exchange for preferred stock.
In reviewing published reports on the firm, Rennova Health, Inc., I learned that it had been delisted from NASDAQ back in 2018. The reason? The firm engaged in too many stock splits.
I also came across an article reporting that another health care firm, a middle Tennessee skilled nursing provider, Diversicare Healthcare Services, Inc., had been delisted in late 2019. The same article noted two additional middle Tennessee health care firms also were in danger of being delisted from stock exchanges. One was subsequently delisted.
Health care mergers and acquisitions also have been in the news here in Tennessee. A Tennessee/Virginia health care business combination finalized in 2018 is one of two under study by the Federal Trade Commission. The combining firms, Mountain States Health Alliance and Wellmont Health System, avoided federal and state antitrust merger approvals and challenges through the receipt of a certificate of public advantage (COPA) under Tennessee law and a coordinated process in Virginia. The resulting firm, Ballad Health, is an effective health care monopoly in the region and has had well publicized challenges in meeting its commitment to provide cost-effective, quality patient care.
I can only assume that these health care corporate finance issues in Tennessee are a microcosm of what exists nationally.
All of this has made me interested in the U.S. healthcare industry as an engaging and useful lens through which one could teach and write about the legal aspects of corporate finance . . . . Many of the current business law issues in U.S. health care firms stem from well-known financial challenges in the industry and the related governmental responses (or lack thereof). With public debates--including in connection with this year's presidential caucuses, primaries, and election--over the extent to which the federal government should provide financial support to the health care industry under existing conditions and whether the health care industry has become too big to fail, health care examples and hypotheticals seem very salient now, in the same way that banking or telecomm examples and hypotheticals may have had pedagogical and scholarly traction in corporate finance in the past.
Some of the business law issues facing U.S. health care firms may be quite the same as they are for firms in any other industry. Yet, some also may be unique to the health care industry and worth further, individualized exploration in the classroom or in the research realm. For example, innovation and entrepreneurship--intricately tied to corporate finance--may be different in the health care space, as currently configured in the United States. This article makes arguments in that regard.
In all, it seems there is a synergy worth examining in the connections between the U.S. health care crisis and business law teaching and research. Unless and until something fundamental changes in the U.S. health care delivery system, corporate finance lawyers and professionals are likely to have important (if somewhat hidden) roles in ensuring that health care firms survive while providing cost-effective care to those who need it. Business law analyses and innovations are sure to play strong roles in this environment, making business law professors key potential contributors. Time for us to step up and take the challenge!
Monday, November 11, 2019
The above photo honors my father's U.S. Army service and my father-in-law's U.S. Army service, in each case, in the Korean War. I took a pause today to respect what they and so many others have done to serve our country. I hope that all veterans and their families and friends have enjoyed a Happy Veteran's Day.
With veteran legal service projects (some through student organizations, like our award-winning Vols for Vets organization at UT Law, a nonprofit supported by many in our community), including full-fledged law clinics (e.g., here and here and here and here and here), emerging across the country, I wondered whether there was any assistance outside the law school context, specifically for veterans who are entrepreneurs. I did find, through a page on the U.S. Veterans Administration (VA) website, that the Office of Small & Disadvantaged Business Utilization has a program for Veteran-Owned Small Businesses. Under the program, a veteran who owns a small business "may qualify for advantages when bidding on government contracts—along with access to other resources and support—through the Vets First Verification Program." A number of additional entrepreneurship programs exist under the auspices of the same VA office. Many can be found on the website for the Office of Small & Disadvantaged Business Utilization (noted above).
In my web travels, I also found a nifty national veteran's entrepreneurship program at the University of Florida Warrington School of Business. And at one of our sister UT system schools, the The University of Tennessee at Chattanooga, the business school--the Gary W. Rollins College of Business--has a Veterans Entrepreneurship Program. And it seems there is quite a bit more out there in the educational setting.
This all seems like a good start. I am sure with more digging, I could find more. I was admittedly gratified, however, to see that Forbes published a piece on free support programs for veteran entrepreneurs. I was hoping to see a bunch more of that kind of thing . . . . Maybe next year?
Again, I send abundant and heartfelt thanks to all of our veterans for their service.
Monday, August 19, 2019
Apropos of my post last week on female founders and leaders of beauty unicorns (and women-founded unicorns more generally), I want to highlight this recent piece from our local paper here in Knoxville. The women featured in the article range from high school students to holders of advanced degrees in their respective fields. Their businesses are all technology driven and have received significant start-up funds through competition awards and grants. None may become unicorns. Their growth and exit strategies may not take them there. Regardless, their ideas have apparent traction and their businesses are experiencing early-stage success. I found each woman and her ideas totally inspiring.
Speaking of inspiring, I also will note that a day earlier, the same news outlet published an article that focused on women-led businesses in our community--and more specifically, on advice that local female CEOs desired to offer to others who are starting or managing their own businesses. Their counsel (which includes, among many other things, encouragement to step away from business operations to achieve greater business success, as well as life balance) is priceless. So are some of the observations these businesswomen make along the way. Here are a few of my favorite quotes, each of which is a great lesson in leadership:
- “I want everybody to be continual learners, and to continue to grow and take chances and do things they didn’t think they could do . . . .”
- “Never underestimate the power of sheer determination . . . ."
- "If you take a group of subject matter experts in whatever they do, that are mission focused, put their egos out the door and they're really interested in solving whatever the problem is, whatever the situation is in front of them, that you are going to come up with more innovative, robust, diverse, comprehensive solutions because of that diversity, because you're coming together as a team . . . ."
Knoxville hosts a lot of business formation and development activity. UT Law's business and trademark law clinics engages with some of the related legal services work. As someone who practiced in BigLaw and worked predominantly with publicly held and larger privately owned firms, I have found my work in the Knoxville community over the past nineteen academic years to be a welcome change and, overall, very rewarding. As I enter my twentieth year of law teaching this week, I plan use all of the goodwill that work has generated (as well as the inspiration offered by the two articles I link to above) to motivate my teaching. I look forward to a happy and productive semester! And if you are a law teacher (or a teacher of any kind, for that matter), I wish you the same.
Monday, August 12, 2019
We hear a lot about unicorns in technology, finance, and the sharing economy. But many of us do not realize that a number of unicorns are owned by women and a number of those focus on make-up and skin care--products geared to a female audience. Female-owned beauty unicorns are all around us . . . .
Why should we care? Well for one thing, female-owned businesses have historically been somewhat rare. (In 1972, women-owned businesses accounted for only 4.6% of all firms, e.g.) And for another, it has been noted that women often have a tough time financing their businesses. (See this 2014 U.S. Senate Committee report and other sources cited below for some details.) Also, it may be interesting to some (it is to me) that a business in such a traditional space can succeed so well in private capital markets given the competitive dominance of major conglomerates (most of which are publicly traded). Also, as I note in closing below (for those teaching in the business law area), the facts and trends in this space may be fodder for great exercises and exam questions.
Women-owned businesses are beginning to catch up in the race for space in commercial and capital markets. The National Association of Women Business Owners (NAWBO) represents on its website (based on data from an American Express report, updated here) that "[w]omen-owned firms (51% or more) account for 39% of all privately held firms and contribute 8% of employment and 4.2% of revenues." The Women's Business Enterprise National Council (WBENC) notes that "From 2007 – 2018, total employment by women-owned businesses rose 21%, while employment for all businesses declined by 0.8%." Women Owned, a WBENC initiative and WEConnect International, asserts that "[o]ver the past 20 years, the number of Women Owned businesses has grown 114 percent compared to the overall national growth rate of 44 percent for all businesses." More relevant to the matter of female-led unicorns, however, the NAWBO reports that "[o]ne in five firms with revenue of $1 million or more is woman-owned" and that "4.2% of all women-owned firms have revenues of 1 million or more."
Yet, unicorns owned by women are the exception rather than the rule in women-owned businesses. Overall, according to the WBENC, the revenues generated by businesses owned by women contribute only 4.3% of the total revenues of private sector firms, despite the fact that they constitute almost 4 of every 10 privately held businesses. WBENC also reports that "88% of women-owned businesses generate less than $100,000 in revenue," noting that "[t]his group is growing at a rate that is faster than the growth rate for larger women-owned companies." So, women still have some work to do in producing gender equity through the creation of large, independent, private firms--whether in the beauty industry or another sector.
“A category that is mostly acceptable price points with high margins and consumable products—that’s a pretty good business setup,” says Green, who was the first person to back Glossier. Green points out that the momentum women like Weiss and Soare [Anastasia Soare, founder of Anastasia Beverly Hills, a leader in eyebrow products, including its famously popular Brow Wiz®] have created has forced investors to reevaluate what has historically been considered a niche women’s space but is on track to grow to $750 billion by 2024. It has also unleashed a harras of unicorn foals—entrepreneurial hopefuls working to emulate this kind of megawatt success in the cosmetics industry and beyond. “Beauty companies have never been considered companies that are changing the world,” says Weiss. But they are changing the dynamics of who’s in the boardroom.
Venture firms go where the money is, and it appears the beauty market is not yet saturated. One needs only note the soaring popularity of Korean beauty products in the United States to understand that this is a big market. Women are credible business leaders in this industry as key, long-term consumers of beauty products.
There is much more data out there on various aspects of women-owned businesses and unicorns. I plan to poke at these topics more from time to time in this space. Information about these types of firms--as part of a growth economy--may be useful to both law academics and legal practitioners--especially those working with, or engaged with issues relating to, entrepreneurs, start-ups, or small businesses.
The mainstream business news media already has taken note. Witness this article on Glossier in Forbes and this one in Business Insider on Anastasia Beverly Hills, the two firms mentioned above. And, of course, the fashion retail media and blogosphere are awash with information on these firms. That's where I learned about these beauty unicorns in the first place. Some super exercises and exams questions may come out of this space. I already base an experiential exercise on Urban Decay, which once was a privately held female-owned beauty business. See this case for details. Other ideas for how to use the information and trends presented here are, of course, invited. Leave a comment to share yours.
Friday, July 5, 2019
The dark side of entrepreneurial finance
Editors: Arvind Ashta, Olivier Toutain
Theme of the special issue
Whether we are talking about start-ups, more recently "grow up" or more broadly about company creation-takeover, entrepreneurial finance attracts a lot of attention, from the entrepreneurs' side and from the side of private and public financing organisations and the media. Entrepreneurial finance includes Founder's equity, Love Money, Business Angel, Venture Capital, LBO Funds, banks, IPOs and various alternative financing treated as shadow banking: micro-credit, loan sharking, leasing, crowdfunding, Initial Coin Offerings, among others (Block, Colombo, Cumming, & Vismara, 2018; Wright, Lumpkin, Zott, & Agarwal, 2016).
Financing is considered as an inherent dimension of the entrepreneurial development process (Panda, 2016; Yunus, 2003). Without financing, there is no investment and, therefore, little chance of starting a business with adequate production tools and an organization capable of absorbing the trials and tribulations of starting and developing entrepreneurial activities. Without funding, the risk of lack of legitimacy is also high: what does it mean in the entrepreneurial ecosystem not to have the support of one or more funding agencies? More so in the start-up world! Is that conceivable? Finally, can the entrepreneur now free himself from financial support, even if he does not really need it to start his business? If the reasoning is pursued further, does the entrepreneur have a choice? In other words, is it possible to create and develop your company without mobilizing the financial resources of the territory? Without entering into a financial system and ecosystem that regulates the creation and takeover of companies in a territory? Or a system that pushes the entrepreneur to finance so much that the system itself collapses by bringing forth a financial crisis (Boddy, 2011; Diamond & Rajan, 2009; Donaldson, 2012; Guérin, Labie, & Servet, 2015; Mishkin, 2011).
Applying for funding today is often considered as a difficult adventure: is it really a fighter's path given the particularly numerous mechanisms in France? But are they also numerous in Europe? In the world? Is the cost of financing transparent or hidden (Attuel-Mendes & Ashta, 2013)? In any case, to adventure is to walk and remove obstacles while following a guide... often at the funder's request... which is often called coaching or mentoring. Or following the guide, sometimes - or often, depending on the reader's appreciation – results in respecting rules, imposed steps, in short, to adopt a good conduct... to such an extent that the entrepreneur can lose track of his North Star, or at least part of his project, modified by "pitching" and integrating the comments, suggestions, strong suggestions of potential funders... In other words, if we push the reflection further, the accompanying logic proposed in the form of good intentions by the funders of an ecosystem, are they not likely, by force, to respond to external constraints, to generate effects opposite to expectations: inhibited entrepreneurs, whose project has lost its originality, vitality and excellence through the coaching or mentoring of initially imagined value creation (Collewaert, 2009)? Isn't the finance injected into the support systems finally a Dr Jekyll and Mr Hyde of entrepreneurship? In other words, if it constitutes an unprecedented measure of support for entrepreneurial growth in the world, does it not at the same time generate "antipreneurial" effects? Normative and highly biased, do financial actors deserve such a place in the creative process? What is it that basically legitimizes their central place? (Bateman, 2010; Sinclair, 2012) What is the hidden face of entrepreneurial finance (Henderson & Pearson, 2011; Krohmer, Lauterbach, & Calanog, 2009; Toe, Hollandts, & Valiorgue, 2017)?
The purpose of this issue is to extract itself from the normative fields and discourses that highlight, in the vast majority of cases, the important role of finance in the development of entrepreneurship, whether purely economic, social or environmental. In other words, we are asking ourselves here about the secondary, even hidden, effects of finance on the emergence and development of new companies in France and around the world.
The proposals will address, among other things, the following topics:
- What place does finance occupy today in the feeling of success and accomplishment of an entrepreneurial activity?
- How do entrepreneurs interact with potential funders?
- How do funders dialogue with each other?
- How do funders make their investment decisions? Rationality, Short termism, information asymmetry....
- How do entrepreneurs and funders negotiate? On which elements of the project or company? Are there any losers? What is lost in the process?
- How does the relationship between entrepreneurs and funders change over time?
- Can finance harm the value creation produced by entrepreneurial activity? Can it affect entrepreneurial freedom?
- Is it possible to free oneself from financing circuits? How?
Finally, what is the dark side of entrepreneurial finance?
Submission of texts: By April 30, 2020 at the latest
Publication: March 2021
[I have omitted here the list of references supporting the text citations. Please contact me by email if you would like a .pdf copy of the call for papers that includes the list. There is more information after the jump.]
Monday, June 17, 2019
Earlier this month, I attended and presented at the 2019 Legal Issues in Social Entrepreneurship and Impact Investing–in the US and Beyond conference co-organized by the Impact Investing Legal Working Group and the Grunin Center for Law and Social Entrepreneurship at the NYU School of Law. My friends Deb Burand and Helen Scott (also my Corporations and Securities Regulation professor when I was at NYU Law) co-direct the Grunin Center. They organized a super conference this year. Each year, the conference draws more folks--and with good reason.
I presented as part of a panel that compared and contrasted the use of different forms of entity for social enterprise businesses. My role was (perhaps predictably, given that I wrote this piece) to defend the use of traditional for-profit corporations for this purpose. I got some love from the panel and the audience, but so did others with different views . . . .
One of the nifty features of this conference is the use of lunchtime slots for "table talks" (roundtable discussions) and workshops. I attended a table talk entitled "Gender Lens Investing: A Year in Review and A Look Ahead" and a workshop on "Re-Designing Legal Education for Lawyers, Social Entrepreneurs, and Impact Investors in the US and Beyond." (The latter, which involved a design-thinking exercise to work on a course plan/syllabus, has spawned an ongoing informal working group that met again earlier today on Zoom.) The conference attracts both lawyers and folks from industry.
For me, a wonderful part of this conference--and the scholar convening that followed on the day after the conference--was the inspiration of a new ideas for research and writing. In my view, a good conference routinely does that, without fanfare. I hope to report out on the details of some of those ideas in the future.
During the week before the Grunin Center conference, I was at the Law and Society Association Annual Meeting. I presented my ongoing insider trading research at that meeting. I will again be presenting that work (with some updates) at the National Business Law Scholars Conference later this week. I hope to see many of our readers there and share my insider trading research in later posts.
Tuesday, April 16, 2019
My friend and colleague, Priya Baskaran, asked me to post the following, which I am happy to do:
Over the past year, a critical mass of law school faculty and staff have expressed interest in establishing an AALS Section on Community Economic Development (CED). The proposed section will provide a dynamic, collaborative environment to enhance the scholarship, activism, and direct legal work of CED-focused faculty and professional staff. Notably, the section will help bridge existing gaps between various actors in the CED universe by increasing opportunities for networking and enabling greater synergy and collaboration between scholars and experts in various substantive subjects and disciplines related to CED. Interested faculty and professional staff are invited to read the full petition.
I think this is a great idea, and I will be signing the petition (here). I have been working with an interdisciplinary group on my campus, WVU Center for Innovation in Gas Research and Utilization (CIGRU). We are a multidisciplinary group of researchers who are experts in science, engineering, environmental, policy, law, and finance. The CIGRU conducts research and services relevant to gas, oil, and chemicals. Our experimental research includes broad areas covering catalysis, reaction engineering, material science, power generation, and gas turbine. The CIGRU undertakes U.S. government- and industry-funded research projects developing clean and renewable energy technologies. Our services include air emission control, regulatory and policy, law and finance relevant to shale gas.
I have been leading CIGRU's Economic and Community Development Group for the past few years. About 18 months ago, CIGRU earned a five-year seed grant awarded by the West Virginia Higher Education Policy Commission, under its Research Challenge Grant program. The WVU gas utilization team includes eight CIGRU researchers, working in partnership with Marshall University, the WVU Energy Institute, the WVU Bureau for Business and Economic Research, the West Virginia Chemical Alliance Zone, Morgantown’s National Energy Technology Laboratory and the Mid-Atlantic Technology, Research and Innovation Center. So, this idea resonates with me. I think this is a great idea, and it has my support. If you agree, I hope you'll sign on, too.
For anyone interested, CIRGUs grant announcement and a description of the program are available after the jump.
Monday, January 28, 2019
Boston University School of Law is seeking to hire a full-time attorney in its Startup Law Clinic (the “Clinic”). The Clinic is part of BU Law’s Entrepreneurship, Intellectual Property, and Cyberlaw Program, which is a unique collaboration between BU Law and the Massachusetts Institute of Technology.
The Clinic represents current students at MIT and BU on matters related to a wide range of legal issues faced by early-stage business ventures. The attorney would be expected to help law students counsel clients and represent students in transactional settings. Clients often present questions of law involving for-profit and nonprofit entity formation, allocations of equity, startup financing, employment and independent contractor issues, ownership of intellectual property, privacy policies, terms of service and other third-party contractual relationships, and trademark and copyright matters. Experience representing startup ventures is considered a plus.
The attorney’s primary responsibility will be to supervise and assist students with direct client representation matters. The attorney will also assist the Clinic Director and Assistant Director in preparing and teaching a year-long seminar for students enrolled in the Clinic, including developing materials, performing research, and coordinating classroom activities and guest presentations. The position is a year-round position and the attorney also would work with student fellows hired to continue the work of the clinic during the summer. As time allows, the attorney would also work with the Clinic Director and Assistant Director to develop generalized legal resources and informational material to inform MIT and BU students on the legal aspects of forming and operating for-profit and nonprofit entities.
The ideal candidate is a member of the Massachusetts bar or is eligible for membership via admission by motion, with at least two years of experience advising clients in a transactional setting, and a willingness to support the work of creative and innovative young clients. Teaching experience or a strong interest in developing as a clinical faculty member is also considered a plus. Exceptional writing, editing, organizational, and managerial skills are required.
The attorney will be hired as a Visiting Clinical Assistant Professor to a two-year contract. The ideal start date is May 28, 2019 or sooner.
Boston University School of Law is committed to faculty diversity and welcomes expressions of interest from diverse applicants.
For more information, see here.
Thursday, November 29, 2018
I’d like to thank the Business Law Prof Blog for the opportunity to be a guest blogger! In this first post, I build on a subject of previous posts (here, here, and here): Theranos, a now defunct Silicon Valley health-care start-up.
I rely heavily on the Financial Times to follow developments in one of my main research areas: financial market clearing and settlement (I’ll plan to report next week on the upcoming December 4th meeting of the Market Risk Advisory Committee, sponsored by CFTC Commissioner Rostin Behnam). The FT recently announced that Wall Street Journal investigative reporter John Carreyrou’s book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, had been named the FT/McKinsey Business Book of the Year 2018. Having immensely enjoyed reading past winners, I wasted no time in ensuring that Amazon Prime speedily delivered it to my doorstep.
Bad Blood is a riveting tale of Theranos’ spectacular rise and fall, and well-worth the reader’s time. A fun fact is that a pathologist blogger, Adam Clapper (founder of the former Pathology Blawg), tipped Carreyrou onto the Theranos story (Chapter 19). Additionally, in the months after Bad Blood’s publication, its founder and CEO, Elizabeth A. Holmes, and former COO, Ramesh “Sunny” Balwani, were charged by the Justice Department with wire fraud.
I know little about the health-care industry. Yet in reading Bad Blood, I was struck by links to and concerns shared with the financial industry (an area about which I know more). Below, I make a few observations and invite reader comments on their importance in these and other industries.
Post-financial crisis, rock-bottom interest rates acted as a “key ingredient” to a new Silicon Valley boom (p.82). Similarly, these low rates have also been a key ingredient for the many years of increasing stock market prices post-financial crisis. Indeed, recent equity market declines made at least a temporary rebound yesterday after comments by Federal Reserve Chairman Jerome Powell at the Economic Club of New York.
The increasing expansion of private markets enables companies such as Theranos to “avoid the close scrutiny” (p.178) to which public companies are subject (nevertheless, Theranos and Holmes settled fraud charges with the SEC). Given current regulatory structures, it also risks severely limiting retail investment opportunities. And it adversely impacts financial journalists’ access to information!
When I teach Banking and Financial Institutions Law, the term “regulation-induced innovation” tends to amuse students. The Theranos tale demonstrates, however, that such practices aren’t a laughing matter. For example, its business strategies appeared to include: maneuvering in regulatory “gray zones” between the FDA and Centers for Medicare and Medicaid Services (p.88), exploiting “gap[s] spawned by outdated statutes” (p.125), and “operat[in]g in a regulatory no-man’s-land” (p.260). Such practices can be troublesome enough in financial markets. However, in Theranos’ case, the stakes (patient health) were much higher.
Finally, who doesn’t love a good story? Carreyrou, a two-time Pulitzer Prize-winning journalist, is an expert storyteller. His portrayal of Holmes suggests that she too profoundly understood the power of stories, and that she had a bewitching talent for telling them. Clearly, untruthful, non-fictional narratives are generally unethical and, depending upon the context, might also be illegal. However, taking a cue from Holmes on the importance of stories and honing one's ability to tell them could assist financial market policymakers. Indeed, several years ago, the FT’s Gillian Tett wrote an opinion piece entitled, “Central bank chiefs need to master the art of storytelling.” Enhanced storytelling capabilities could also assist academics researching financial market regulation. For both, the ability to compellingly communicate with the public about issues in financial markets and their broad-based importance is critical. Even so, constructing a fascinating narrative about clearing and settlement along the lines of Bad Blood would be no small feat!
Tuesday, October 30, 2018
Tom Rutledge, at Kentucky Business Entity Law Blog, writes about a curious recent decision in which the Kentucky Court of Appeals overrule a trial court, holding that the law of piercing the veil required the LLC veil to be pierced. Tavadia v. Mitchell, No. 2017-CA-001358-MR, 2018 WL 5091048 (Ky. App. Oct. 19, 2018).
Here are the basics (Tom provides an even more detailed description):
Sheri Mitchell formed One Sustainable Method Recycling, LLC (OSM) in 2013. Mitchell initially a 99% owner and the acting CEO with one other member holding 1%. Mitchell soon asked Behram Tavadia to invest in the company, which he did.
He loaned OSM $40K at 6% interest from his business Tavadia Enterprises, Inc. (to be repaid $1,000 per month, plus 5% of annual OSM profits). There was no personal guarantee from Mitchell. OSM then received a $150,000 a business development from METCO, which Tavadia personally guaranteed and pledged certain bonds as security.
Two years (and no loan payments) later under the original $40,000 loan, Tavadia agreed to delay repayment. OSM and Tavadia the created a second loan for $250,000, refinancing the original $40,000 and a subsequent Tavadia $12,000 loan. This loan provided Tavadia a 25% ownership interest in OSM, but there was still no personal guarantee on the loan. Mitchell claimed this loan was needed to purchase essential equipment (no equipment was purchased). OSM then received a $20,000 loan from Fundworks, LLC, which was secured by Mitchell, who signed Tavadia’s name for OSM and she signed a personal guarantee in Tavadia’s name (both without permission).
Not surprisingly, in October 2015, OSM stopped operations, the equipment was sold, and more than half of the sale proceeds were deposited in Mitchell’s personal bank account, with the rest going to OSM’s account. OSM (naturally) defaulted on the Fundworks’ loan, which Tavadia learned about when Fundworks demanded repayment. The METCO loan also defaulted, and Tavadia was asked to provide funds from the bonds he provided as collateral.
Okay, so it sounds like Mitchell took advantage of Tavadia and engaged in some elements of fraud. What I can’t figure out from this case is why we’re talking about veil piercing.
First, the court states: “The evidence presented at trial demonstrated that Mitchell diverted OSM assets into her own account.” Tavadia v. Mitchell, No. 2017-CA-001358-MR, 2018 WL 5091048, at *5 (Ky. Ct. App. Oct. 19, 2018). So that money Mitchell owes to OSM, which owes money to Tavadia. The court noted that at least half the funds from the sale of OSM equipment went into Mitchell’s personal account. That needs to go back to OSM, and if veil piercing has value, then a simple order of repayment should be, too.
Second, the Fundworks loan, which Mitchell signed for, is really her loan, not Tavadia’s. He did not know about it until they sought payment, so it wasn’t ratified, and there is no other indication she has authority to enter into the contract.
At a minimum, these funds are owed Tavadia (or OSM) and should be itemized as such. Presumably, that is not enough money to make Tavadia whole. And I don’t know he should be. To the extent there were legitimate (if poorly executed) business attempts, he is on the hook for those losses. As such, I don’t see this as a veil-piercing case.
Instead, Tavadia should be able to sue Mitchell for her fraudulent actions that harmed him directly. And Tavadia should be able to make OSM sue Mitchell for improper transfers and fraud.
Maybe there are other theories for recovery, too, but veil piercing should not be one. Mitchell did not use the entity to commit fraud. She committed fraud directly. Just because there is an entity, plus an unpaid loan, it does not make this a veil-piercing case. In fact, because Tavadia is a member of the LLC, I think there is a reasonable argument that (absent truly unique circumstances) veil piercing cannot apply.
I am sympathetic that Tavadia was taken advantage of, and I think that Mitchell should have a significant repayment obligation to him, but I just don’t think this claim should be rooted in veil piercing. At a minimum, like in administrative law, one should have to exhaust his or her remedies before proceeding to a veil-piercing theory.
Tuesday, October 23, 2018
Employee Stock Options in Unicorns: Scholarship At the Intersection of Securities Law and Employee Benefits
Friend of the Business Law Prof Blog Anat Beck recently posted a draft of her article entitled Unicorn Stock Options - Golden Goose or Trojan Horse? on SSRN. I heard presentations on earlier versions of this piece, which I personally find quite intricate and interesting. An excerpt fro the SSRN abstract follows:
This article examines a contemporary puzzle in Silicon Valley – is there a shift in unicorn employees expectations that results in labor contracting renegotiations? It explores the challenges faced by unicorn firms as repeat players in competitive technology markets. It offers the following possible solutions. First, new equity-based compensation contracts, and critiques them. Second, alternatives to the traditional liquidity mechanisms, and critiques them.
It concludes with proposals to remove legal barriers to private ordering, and new mandatory disclosure requirements.
The article has been picked up by the Harvard Law School Forum on Corporate Governance and Financial Regulation and linked to in a Matt Levine column for Bloomberg. This is a good read, especially for those of you interested in entrepreneurial business law (which is Anat's speciality).